Finance Ministry considers raising standard deduction limit in income tax
The Finance Ministry, led by Nirmala Sitharaman, is contemplating an increase in the standard deduction limit for taxpayers under the new regime. This potential change is being considered as the NDA government prepares its Union Budget. The older tax regime, filled with exemptions, might remain unchanged. Sitharaman has initiated public consultations on the budget, with most discussions currently taking place. These internal assessments are to be reviewed with other branches and the Prime Minister's Office before final decisions.
Previous changes to standard deduction reviewed
In the 2023 Budget, a standard deduction of ₹50,000 was introduced for salaried taxpayers and pensioners under the new regime. This became the default unless opted out. Additionally, a rebate under Section 87A was increased for taxable incomes up to ₹7 lakh, effectively eliminating taxes for these earners. The highest surcharge under the new regime was also removed.
Industry leaders suggest adjustments to stimulate consumption
Currently, individuals with taxable incomes above ₹3 lakh pay a 5% income tax. Industry leaders have proposed adjusting rates in higher brackets to stimulate consumption. An increased standard deduction would benefit all salaried taxpayers, including higher earners, despite potential revenue losses.
Standard deduction threshold considered insufficient
Initially, the standard deduction was introduced at ₹40,000 to aid salaried individuals with transport and medical expenses, and was raised to ₹50,000 in 2019. Given current living costs as well as inflation rates, this threshold is considered insufficient. Hence, it might be raised to a minimum of ₹1 lakh. While major changes to capital gains rules are improbable, the government aims to standardize holding periods across asset classes, but might opt to retain the current status quo for now.
