Last Updated on January 28, 2025 by IPO Manthan Team
As the Union Budget 2025 approaches, taxpayers are eagerly anticipating potential changes to the tax structure, particularly the standard deduction under the New Tax Regime. Currently, the standard deduction is set at Rs 75,000, an increase from Rs 50,000 in the previous budget. However, with rising living costs and inflation, financial experts are calling for further enhancement, with a popular demand to raise the standard deduction to Rs 1 lakh. Such an increase would provide much-needed relief for salaried individuals and pensioners alike.
Current Standard Deduction Comparison
| Regime | Standard Deduction (Current) | Expected Increase |
|---|---|---|
| Old Tax Regime | Rs 50,000 | No change |
| New Tax Regime | Rs 75,000 | Rs 1,00,000 |
The New Tax Regime, introduced as a simplified alternative to the Old Tax Regime, aims to offer lower tax rates but has limited deductions. Despite its benefits, many taxpayers hesitate to opt for it due to the absence of popular exemptions and deductions like Section 80C, health insurance under Section 80D, and house rent allowance (HRA). Increasing the standard deduction in Budget 2025 could bridge this gap, making the regime more attractive. With inflation squeezing household budgets, the demand for raising the standard deduction is becoming a significant talking point, and many believe the government will address this issue.
The expectation that the standard deduction be increased in Budget 2025 stems from the pressing need to improve disposable income for middle-class families. While the New Tax Regime currently provides a simpler framework, its limited deductions have made it less appealing to those accustomed to tax-saving investments under the Old Tax Regime. By increasing the standard deduction, the government can make the New Tax Regime a more viable option for taxpayers while ensuring they have additional financial breathing room.
Key Exemptions/Deductions in New Tax Regime
| Deduction | Availability in New Tax Regime | Remarks |
|---|---|---|
| Standard Deduction | Rs 75,000 (current) | Expected to increase to Rs 1,00,000 |
| Section 80C | Not available | Popular in Old Tax Regime |
| Section 80D (Health Insurance) | Not available | |
| Employer’s NPS Contribution | Up to 14% of salary |
Finance Minister Nirmala Sitharaman is under pressure to consider these demands. Reports suggest that the government is evaluating ways to balance tax reforms with economic needs. If the standard deduction is raised to Rs 1 lakh, it will not only benefit salaried employees but also senior citizens who rely on pensions. This move could also align with discussions about increasing the basic exemption limit, which currently stands at Rs 3 lakh, to help more individuals reduce their tax liability.
The call for the standard deduction be increased in Budget 2025 highlights the growing demand for tax relief in the face of economic challenges. In the previous budget, the jump from Rs 50,000 to Rs 75,000 was welcomed but is now viewed as insufficient given the current cost of living. Increasing it to Rs 1 lakh would ensure better financial stability for families while encouraging more taxpayers to switch to the New Tax Regime.
Experts believe that raising the standard deduction would also simplify tax compliance, as it eliminates the need to claim multiple deductions and exemptions. This would streamline the filing process and make the New Tax Regime a more straightforward option. Moreover, increasing the standard deduction would align with the government’s goal of reducing the tax burden on lower and middle-income groups, offering immediate relief without overhauling the entire tax structure.
Although there is no official confirmation yet, the growing consensus among economists and taxpayers is that the standard deduction be increased in Budget 2025. Doing so would not only address inflationary pressures but also provide a significant boost to consumer spending. With Budget Day scheduled for February 1, 2025, all eyes are on the Finance Minister to deliver on this expectation.
Potential Benefits of Increasing Standard Deduction
| Benefits | Explanation |
|---|---|
| Higher disposable income | More money in hand for salaried individuals and pensioners. |
| Simplified tax compliance | Reduces reliance on multiple deductions. |
| Boost to New Tax Regime adoption | Makes it more competitive against the Old Tax Regime. |
| Relief from inflation | Helps households manage rising living costs. |
In summary, the potential increase in the standard deduction is one of the most anticipated aspects of Budget 2025. Raising the standard deduction from Rs 75,000 to Rs 1 lakh would help salaried individuals, pensioners, and lower-income groups manage their expenses better. If the government takes this step, it could mark a significant milestone in making the New Tax Regime more beneficial and accessible for a larger section of taxpayers. The demand for this change underscores its importance, and many are optimistic that the standard deduction be increased in Budget 2025 to bring relief to millions of taxpayers across the country.