Finance Minister Nirmala Sitharaman has given relaxation in the income tax slab in the new tax system for the financial year 2024-25 in Budget 2024. In the new tax system in Budget 2024, the standard deduction amount has been announced to be increased to INR 75000.
The new income tax slabs announced in Budget 2024 are as follows:
0% tax up to INR 3 lakh,
5% tax from INR 3 lakh to INR 7 lakh,
10% tax for taxpayers from INR 7 lakh to INR 10 lakh,
15% tax on INR 10 to 12 lakh range
20% tax in INR 12 to 15 lakh slab
And finally there is a provision of 30% tax for above INR 15 lakh.
Standard deduction will save up to INR 17,500 for taxpayers opting for the new tax regime. Additionally, the standard deduction limit has been increased from INR 50,000 to INR 75,000 in the new tax system.
For family pensioners, the standard deduction limit has been increased from the current INR 15,000 to INR 25,000. Standard deduction has been increased for the first time after five years. The standard deduction was last increased to INR 50,000 in the Interim Budget 2019 (effective from April 1, 2019).
Currently, a standard deduction of INR 50,000 is available under the new and old tax regime. The benefit of standard deduction is available to those who have salary or pension income. Hence, only salaried people and pensioners are eligible to claim this deduction.
It is important to note that annuity payments (pensions) received from insurance companies are taxable under the head “Income from other sources”. Hence, they are not eligible for standard deduction. However, family pension taxable under the same head is eligible for standard deduction.
How to claim standard deduction?
Standard deduction is a direct deduction available from salary and pension income. There is no need to submit any document to claim standard deduction. However, as mentioned above, it is necessary to show the receipt of salary/pension income.
History of Standard Deduction
The standard deduction was available to taxpayers till FY 2004-05 and was part of the Income Tax Act, 1961. At that time, a salaried person could claim a standard deduction of INR 30,000 or 40% of the salary, whichever was lower. It was available to salaried individuals with an annual income of up to INR 5 lakh.
A standard deduction of INR 20,000 was available for those earning more than INR 5 lakh. This deduction was withdrawn from the financial year 2005-06. The standard deduction returned in Budget 2018. This deduction was introduced in place of medical reimbursement and transport allowance. When it was reintroduced, salaried individuals were allowed a standard deduction of INR 40,000.