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regular-article-logo Thursday, 18 July 2024

Relief to salaried middle class on cards, Nirmala Sitharman may hike standard deduction to Rs 70,000

Economists believe the middle class, especially households earning ₹5-10 lakh annually, are suffering the most as they do not even qualify for subsidies and have to bear the full brunt of inflation

R. Suryamurthy New Delhi Published 10.07.24, 11:13 AM
Nirmala Sitharaman

Nirmala Sitharaman File picture

With a fortnight to go for Union Budget 2024-25, there is a growing buzz in the corridors of North Block that finance minister Nirmala Sitharman would offer some relief to the salaried middle class. The standard deduction for salaried individuals, currently fixed at 50,000 could be increased to 70,000.

A standard deduction of 40,000 per year for salaried individuals was reintroduced in Budget 2018, replacing two earlier deductions — travel allowance (19,200) and medical deduction (15,000) per annum. In the interim budget of 2019, the standard deduction limit was increased to 50,000.

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However, there has been a continuous demand to increase this limit, as the total of the replaced deductions was 34,200. Consequently, the current limit of 50,000 offers only marginal additional savings to taxpayers.

Analysts believe that the finance minister may consider increasing the standard deduction to up to 1 lakh per annum in the upcoming budget. However, the buzz in the corridors indicates that the standard deduction would be increased only to 70,000.

Akhil Chandna, partner, Grant Thornton Bharat said: “With the introduction of the standard deduction in 2018 and the last increase in 2019 from 40,000 to 50,000, it is essential to raise the threshold to 75,000 to align with the current living costs and inflation. Raising the standard deduction can help improve people's purchasing power, especially those with fixed incomes like pensions.”

Sameer Gupta, national tax leader, EY India said “The government's focus on key tax policies and measures is pivotal for economic stability and growth. Firstly, maintaining stability in corporate tax rates and continuing the concessional tax regime for personal taxes are crucial. Enhancing the attractiveness of this regime by increasing the standard deduction or raising the basic exemption limit would benefit individual taxpayers.”

The standard deduction is a flat deduction available to individuals earning a salary. Employees do not need to submit any proof or documents to the employer or IT Department to claim this deduction.

A standard deduction of up to 50,000 per year is allowed when computing income is chargeable under the head "salaries". This deduction is available to all employees, whether in the private or government sector, regardless of the amount of salary.

Until 2022-23, the standard deduction was available only under the old regime. However, starting from 2023-24, salaried taxpayers are also eligible for a standard deduction of 50,000 under the new tax regime.

The standard deduction is also available in case of income from pension, provided that the pension received is chargeable under the head "Income from Salaries" and not under "Income from Other Sources."

Economists believe the middle class, especially households earning 5-10 lakh annually, are suffering the most as they do not even qualify for subsidies and have to bear the full brunt of inflation.

Any increase in the standard deduction would increase consumer spending and support economic recovery while maintaining fairness in the tax burden across different income levels.

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