Tax relief imperative? Why Budget 2024 needs standard deduction hike
India's Finance Minister Nirmala Sitharaman is anticipated to increase the standard deduction limit in the upcoming budget, potentially bringing good news to individuals earning salary and pension. The standard deduction, reintroduced in 2018 at ₹40,000 per year, replaced two previous deductions (travel and medical) totalling ₹34,200. It was raised to ₹50,000 in the 2019 but there has been continuous demand to increase this limit. Experts predict a possible increase up to ₹1 lakh to boost disposable income for taxpayers.
Standard deduction: A relief amid rising inflation
Increasing inflation has led to calls for a rise in the standard deduction limit. "With a significant increase in inflation and the standard deduction remaining fixed at ₹50,000 for an extended period, individuals are anticipating an increase to ₹1,00,000," said Akhil Chandna from Grant Thornton Bharat. This hike would provide some relief to taxpayers amid escalating costs of living.
Increased standard deduction is seen as a step toward parity
Raising the standard deduction limit is seen as a necessary step to ensure parity between salaried individuals and those with income from business or profession. Chandan Talreja, partner at Vialto Partners, stated that "salaried taxpayers are eligible to claim a standard deduction of ₹50,000 irrespective of actual expenses incurred by them unlike individuals having income from business." He believes that even an initial increase in standard deduction by ₹25,000 could create some tax benefits parity between these two groups.
Standard deduction: A potential boost to disposable income
The potential increase in the standard deduction limit could also significantly boost disposable income for taxpayers. Amarpal S Chadha, Tax Partner and Mobility Leader at EY India, stated that "the government may increase the standard deduction amount from ₹50,000 to ₹1 lakh." Despite the Indian economy growing at an impressive 8.2% in 2023-24, consumption has only increased at half that rate. A decrease in personal tax could potentially boost economic consumption and increase middle-class savings.
