The finance ministry is considering raising the standard deduction limit for income taxpayers under the new regime, while keeping the tax exemption-heavy old regime unchanged. The NDA government is preparing to present its first Budget of its third term. It is unlikely to make major changes to the capital gains mechanism, despite the income tax department’s push for a review. There have been suggestions to align the holding period across asset classes, but the government may not be inclined to make changes at this time.
Discussions on the Budget have just begun, with Finance Minister Nirmala Sitharaman leading the talks. The finance ministry is evaluating various issues and will seek input from other government departments before making final decisions based on feedback from the PMO.
Most government departments support tax breaks for taxpayers, especially the middle class. This group has been a strong supporter of the Modi regime but is now expressing concerns about the benefits they receive for their taxes, such as public healthcare and education.
Income Tax in Budget 2024: What is the Standard Deduction?
The standard deduction is a fixed amount that employed individuals can subtract from their taxable salary income without providing evidence of actual expenses. It aims to create fairness between individuals who earn income from a salary and those who earn income from a business. The standard deduction is applicable in both the old and new income tax systems.
Standard Deduction Introduced in New Tax Regime in Budget 2023
In the 2023 Budget, the Finance Minister introduced a standard deduction of Rs 50,000 for salaried taxpayers and individuals receiving pensions under the new tax regime. This standard deduction became the default option unless taxpayers opted out. Additionally, the rebate under Section 87A was increased for taxable incomes not exceeding Rs 7 lakh under the new tax regime, allowing individuals with taxable incomes up to this level to be exempt from paying taxes. Furthermore, the highest surcharge under the new regime was eliminated from the tax structure.
Individuals with a taxable income of over Rs 3 lakh currently have to pay 5% income tax. Industry leaders have proposed adjusting the tax rates for higher income brackets to stimulate spending. Increasing the standard deduction will benefit all salaried taxpayers, including higher-income earners, despite resulting in some lost revenue.
Also read: Union Budget 2024: What is the New Income Tax Slab?
Why the Standard Deduction Should be Hiked in Budget 2024
Most deductions and exemptions are not allowed under the new tax regime, making it important to increase the standard deduction to encourage more people to opt for the new system. Since the standard deduction is likely the only deduction most people can claim under the new system, increasing it will help more people benefit from the new tax rules.
As the cost of living rises due to inflation, raising the standard deduction can help protect the purchasing power of people, especially those with fixed incomes like pensions. A higher standard deduction makes the tax system fairer by providing more tax relief, especially for lower and middle-income groups. It can give employed people and retirees more money to spend by lowering the amount of taxed income, which will help boost consumer spending and stimulate economic growth.