Standard deduction is a flat deduction that is available to salary-earning individuals. Employees are not required to submit any proof or documents to the IT department to claim this deduction. Standard deduction up to Rs 50,000 per annum is allowed while computing the income payable under the head. This deduction is available to all employees, whether in the private or government sector, regardless of the amount of salary.
Budget 2024: With the budget around the corner, there are a lot of expectations and speculations about the benefits that the finance minister will announce for taxpayers. One such anticipated benefit is the increase in the standard deduction limit. The standard deduction of Rs 40,000 per annum for salaried individuals was re-introduced in Budget 2018, replacing two old deductions, travel allowance (Rs 19,200) and medical deduction (Rs 15,000). The standard deduction limit was further increased to Rs 50,000 in the interim budget 2019.
Possible increase in standard deduction
Experts believe that in the upcoming budget, the finance minister may consider increasing the standard deduction to Rs 1 lakh per annum. The government may increase the amount of standard deduction from Rs 50,000 to Rs 1 lakh to increase the disposable income in the hands of taxpayers.
Other experts also agree with this sentiment and believe that the government will definitely consider increasing the limit of standard deduction. Akhil Chandna, partner, Grant Thornton India, said, “There is a possibility that the government may increase the standard deduction. Currently, due to the rise in inflation and the standard deduction remaining stagnant at Rs 50,000 over an extended period of time, people are expecting the standard deduction to be increased to Rs 1,00,000, which will provide some relief to taxpayers.”
Standard Deduction for Pensioners
Standard deduction is also available in case of income from pension, if it falls under “Income from Salary” and not under Income from Other Sources. Pension received by an individual after retirement falls under Income from Salary, thereby allowing Standard Deduction. However, if dependents receive pension as family pension after the death of an individual, it falls under Income from Other Sources, making them ineligible for this deduction.
The current limit of Rs 50,000 offers only marginal additional savings to taxpayers as it has replaced the total deduction of Rs 34,200. As a result, there has been a persistent demand to increase this limit. Experts argue that increasing it will help taxpayers save more and have more disposable income.
Expert opinion on standard deduction
Chander Talreja, partner, Vialto Partners, said salaried taxpayers are eligible to claim a standard deduction of Rs 50,000 irrespective of the actual expenditure incurred by them, while individuals with business and profession income are eligible to claim deduction for business-related expenditure. Talreja believes that raising the limit to Rs 25,000 could help bring some parity between salaried individuals and individuals with business income.
This benefit was available only under the old regime till FY 2022-23. However, from FY 2023-24, salaried taxpayers can also claim a standard deduction of Rs 50,000 under the new tax regime. The speculation about the possible changes in tax benefits highlights how important these adjustments are for the financial planning of many individuals. The increase in standard deduction could provide much-needed relief amid rising living costs.
