The new Budget is expected to feature some tax reforms potentially taking place to control inflation. An increase in standard deduction is one of those expected reforms.

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“Consumption could get a significant boost this year as the government looks to drive demand,” said Prateek Bansal, Partner – Taxation at White & Brief – Advocates & Solicitors. “We may see sops like higher standard deductions or increased rural spending, benefiting companies in FMCG and consumer durables.”

What is standard deduction?

Standard deduction is a flat amount which is automatically deducted from an individual’s annual income. This reduces the total taxable income and therefore, lowers the tax liability.

An example would be if one’s annual taxable income is ₹10,00,000 and the individual qualifies for a standard deduction of ₹50,000, the taxable income gets reduced to ₹9,50,000.

“Salaried individuals bear the biggest brunt of taxation in India,” said Vivek Jalan – Partner Tax Connect Advisory Services LLP. “They have many expenses for the purpose of earning their salary like conveyance, travelling, relocation and mobile expenses to an extent, etc.”

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However they get only one deduction for such expenses, which is standard deduction, he explained.

“However in the present day continuous inflationary conditions, the current ₹75,000 of standard deduction is too low,” he added. “Salaried taxpayers are hoping that the government will increase the amount to ₹1 lakh in the new income tax regime.”

Standard Deduction: Old vs New tax regime

Old Tax Regime

Under the old tax regime, taxpayers can avail standard deduction of ₹50,000.

Standard deduction for the old regime has been in place since 2018 when it was reintroduced by then-Finance Minister Arun Jaitley at ₹40,000 after it was removed during the 2005-06 financial year. It replaced transport and medical allowances.

New Tax Regime

The new tax regime initially offered no standard deduction, but in 2023, a ₹50,000 standard deduction was introduced. In 2024, this was increased to ₹75,000.

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Who is eligible for Standard Deduction?

All salaried individuals as well as retired taxpayers are eligible for standard deduction when filing their Income Tax Returns (ITR). Self-employed individuals and Hindu Undivided Families (HUF) are however, not eligible.