Everyone’s eyes are on the finance minister as Budget 2025 draws closer, particularly those in the salaried class. The important thing salaried individuals want to know whether the finance minister will hike the standard deduction limit to provide relief. As per current income tax laws, the standard deduction under the new tax regime is currently Rs. 75,000, while under the old regime it is Rs. 50,000.Will Budget 2025 replace Income Tax Act with new Direct Tax code? Here’s what experts say
What is Standard Deduction available to salaried individuals?
Standard Deduction is a fixed amount subtracted from your salary income. This is a straight deduction which helps salaried individual to reduce taxable salary income. It allows taxpayers to lower their tax liability without requiring any supporting documents, making it a hassle-free tax benefit.
Also read: Hike basic exemption limit to Rs 5 lakh, cut income tax rates, further reduce number of TDS rates in Budget 2025: EY
Apart from salaried, even pensioners are also eligible for the standard deduction. This deduction reduced their taxable pension income.
Will Budget 2025 hike standard deduction limit for salaried, pensioner?
ET Wealth Online spoke to some experts on whether any increase is expected in Standard Deduction in Budget 2025. Here are their opinions.
Harsh Bhuta, Partner, Bhuta Shah & Co says, “The Union Budget 2025 is anticipated to provide significant relief to the salaried class, and one potential measure could be an increase in the standard deduction. Currently, the standard deduction is capped at Rs 50,000 under the old tax regime and Rs 75,000 under the new tax regime. A proposed increase to Rs 1 lakh under both regimes would directly benefit taxpayers by reducing their tax liability, thereby increasing disposable income. This could have a positive ripple effect on consumer spending and overall demand in the economy. However, the final decision will reflect the Government’s assessment of fiscal priorities and the broader economic context.”
Anita Basrur, Partner, Sudit K. Parekh & Co. LLP says, “Standard Deduction is a fixed amount of deduction that is available to salaried persons as well as pensioners. This deduction helps in reducing the taxable income and no proof is required for the same. At present, the standard deduction is Rs. 75,000 under the new regime and Rs. 50,000 under the old regime. Keeping in mind that the Government has proposed to revamp the tax laws and is in the process of formulating the Direct Tax Code, it may not be in a mood to really tinker with the deductions under the law. However, till the time the DTC is in place, in order to encourage the individuals to opt for new tax regime and to simplify the income tax return filings by enabling deductions regardless of actual expenses, it is expected that the government will increase the standard deduction limit under the new tax regime. This would offer more disposable income for the salaried class. The same could be increased to Rs. 100,000 under the new tax regime.
Aurelia Menezes, Partner, King Stubb & Kasiva, Advocates and Attorneys says, “The Government of India has been facing the brunt from the general public due to high rates of taxes across the board. We believe that the government has taken note of many such requests from the general public to reduce the burden of taxes. As per media speculations, there is a considerable chance that 2025 union budget would bring pleasant news to the general public at large pertaining to an increase in the standard deduction from salaried income which is currently placed at Rs 50,000 and Rs 75,000 in the old tax regime and the new tax regime respectively.”
CA Ruchika Bhagat, MD, Neeraj Bhagat & Co says, “As the Union Budget 2025 approaches, With the current standard deduction set at Rs75,000, salaried individuals are hopeful that Budget 2025 will bring a further hike to provide much-needed relief. As inflation drives up living costs, especially in Tier 1 cities, an increase in this deduction could ease the financial burden on middle-class taxpayers and allow them to manage their expenses better.
Moreover, enhancing the standard deduction under both the old and new tax regimes would align with the government’s objective of putting more disposable income in the hands of taxpayers. This move could have a ripple effect on the economy, as increased consumer spending helps rotate money through various sectors, ultimately boosting economic growth.
The anticipation is high-will Budget 2025 rise to the occasion and offer this financial relief? A decision like this could make a significant difference to taxpayers and the nation’s economic momentum.”
Santhosh Sivaraj, Partner, Global Employer Services, Tax & Regulatory Services, BDO India says, “Owing to the inflation and increase in prices in both transport and medical since FY 2018-19 since the time standard deduction was reintroduced (in lieu of transport allowance and medical reimbursement), the Finance Minister should look at bringing in parity for those opting for either Old or the New Tax Regime and increase the standard deduction to a minimum of Rs 1.20 lakhs a year. This would seem practical as any salaried taxpayer would be incurring Rs 10,000 a month or Rs 1.20 lakhs a year collectively towards transport and medical expenses.”
