Income Tax Standard deduction may be limited to Rs. 50,000 due to drafting error in Finance Act 2025?

With the introduction of the new budget 2025, in the new tax regime, the government has increased the minimum limit of tax-free income to Rs. 12 Lakh per year. In addition to this government has also increased the standard deduction for salaried employees to Rs 75 thousand from Rs 50 thousand. It is also being notified by the government that yearly income upto Rs 12.75 lakh will be considered as tax-free for salaried individuals. However, many experts have raised questions about the changes made as per the Finance Act 2025. As per these experts, the Finance Act 2025 says even if someone adopts a new tax regime, the amount of standard deduction will remain the same, i.e., 50 thousand and not 75 thousand in the financial year 2025-26.

Under the new tax regime, how is the part of income that doesn’t get taxed arranged?

In Budget 2025, the government gave a big benefit to salaried people under the new tax system. It was announced that if someone’s annual income is up to Rs. 12.75 lakh, they won’t have to pay any tax. This amount was calculated like this:

• The total salary was considered to be Rs 12.75 lakh.
• The standard deduction was to be Rs 75 thousand under the new tax regime.
• After deduction, taxable income will be Rs 12 lakh.
• Income tax on Rs 12 lakh will be Rs 60 thousand.
• Then, under section 87A, a rebate of Rs 60,000 will be available, and the tax will turn to zero.

Questions have been raised that this calculation is not correct for the financial year 2025-26.

What mistake happened in the drafting of Finance Act 2025?

Experts say that if you look closely, there’s a technical mistake in how the Finance Act 2025 deals with the standard deduction. The rule to raise the standard deduction to Rs. 75,000 was added under section 16(ia). However, it only refers to section 115BAC(1A)(ii), which applies to the financial year 2024-25.

But for 2025-26, a new clause — 115BAC(1A)(iii) — was introduced, and this clause does not mention the increased deduction of Rs. 75,000.

This means that for the financial year 2025-26, taxpayers may still only get the old standard deduction of Rs. 50,000 instead of Rs. 75,000.

How will tax-free income be affected by it?

If only the standard deduction of Rs 50,000 is applicable and the deduction of Rs 75,000 is not available, then the limit of tax-free income will also be lowered. In the listed way, the calculation will be made now:

• Total income Rs 12.50 lakh.
• Standard deduction of Rs 50 thousand will be available.
• Taxable income will be saved by Rs 12 lakh.
• Tax on Rs 12 lakh amounts to Rs 60 thousand.
• Under section 87A, a rebate of Rs 60,000 will be available, and the net tax will be zero.