The Union Budget 2024 is slated to be presented next week and a majority of taxpayers are concerned about whether the standard deduction limit will be raised in the upcoming budget or not.
It may be noted that salaried individuals are eligible for a standard deduction without having to provide evidence of actual expenses incurred. Under Section 16(ia) of the Income Tax Act, 1961, those filing their return of income under the old tax regime can claim a standard deduction of Rs 50,000 against their salary. The Finance Act 2023 extended this benefit to salaried individuals opting for the concessional tax regime u/s 115BAC of the Income Tax Act.
This deduction has been available for many years. However, it was removed in 2005, only to be reintroduced in the 2018 Union Budget. Initially set at Rs 40,000 in the Union Budget 2018, the standard deduction was later increased to Rs 50,000 in the Budget 2019. However, the increased limit of Rs 50,000 was limited to the old tax regime. In an effort to make the new tax regime more appealing, the Union Budget 2023 allowed a standard deduction of Rs 50,000 to taxpayers opting for the new regime as well.
However, the existing deduction of Rs 50,000 is considered inadequate to address the rising expenses linked to the increased cost of living and, therefore, it is imperative to raise the limit of this deduction.
Tax experts say the alignment would also result in equality with individuals generating revenue from business or profession, who have the option to either deduct actual expenses or choose a presumptive basis of taxation, where a specific percentage of gross income is deemed as an expense.
Additionally, “following the pandemic, there has been a rise in medical expenses, which should be taken into account when contemplating an elevation in the standard deduction. To tackle these issues, the government should contemplate raising the standard deduction limit to Rs 100,000 from the current 50,000,” says Divya Baweja, Partner, Deloitte India.
Radhika Viswanathan, Executive Director, Deloitte Haskins & Sells LLP, says increase in standard deduction has been one of the important demands of the salaried taxpayer from the government. Though this has now been included under the simplified tax regime, which is the default regime, given that the salaried taxpayer is not eligible for most deductions / exemptions, increase in the limit of standard deduction is a key expectation. “Going by the trend in the past budgets, this however seems unlikely. But we could expect the basic exemption limit being increased from the existing Rs 300,000 to Rs 500,000,” she adds.
Sanjiv Malhotra, Senior Advisor, Shardul Amarchand Mangaldas & Co, also says that there is a lot of talk about the FM considering to raise the standard deduction. If it happens, it will serve two purposes. One, the disposable income in the hands of the salaried class will go up and, second, it will further encourage more taxpayers to opt for the new tax regime.
“Year-on-year inflation requires tax relief to the salaried class. While relief may also come by enhancing the limits under various tax slabs; standard deduction creates some parity for wage earners, who unlike others are unable to claim to expenses in relation to their vocation,” he adds.
Thus, there is no doubt that there is a strong argument for increasing the standard deduction limit, regardless of the circumstances. It is anticipated that Finance Minister Nirmala Sitharaman will address this legitimate request from the salaried class in due course.
