Budget 2025– The Union Budget 2025 is just around the corner, and one of the key expectations from salaried individuals and pensioners is a potential hike in the standard deduction. The standard deduction is a fixed amount subtracted from taxable income, helping taxpayers lower their overall tax burden.
Currently, the standard deduction under the new tax regime is ₹75,000, while it remains ₹50,000 under the old tax regime. With rising inflation and increased living expenses, experts argue that the government should increase this deduction to provide much-needed relief. This change would benefit millions of salaried employees and pensioners, helping them manage expenses better while reducing tax liabilities.
Budget 2025
| Key Topic | Details |
|---|---|
| Current Standard Deduction | ₹75,000 (New Tax Regime), ₹50,000 (Old Tax Regime) |
| Expected Hike | Experts suggest increasing it to ₹1,00,000 or more |
| Impact on Taxpayers | Higher disposable income, tax savings, and financial relief |
| Government’s Objective | Encourage adoption of the new tax regime |
| Expert Opinions | Tax consultants and economists advocate for an increase |
| Comparison with Global Tax Practices | Higher standard deductions in countries like the US & UK |
| Official Budget Website | www.indiabudget.gov.in |
A hike in the standard deduction for Budget 2025 would provide much-needed tax relief to salaried individuals and pensioners. With inflation and cost-of-living pressures, increasing the deduction to ₹1,00,000 or more seems like a logical step. This would benefit not just individuals but also the overall economy, leading to increased spending and growth.
Understanding the Standard Deduction
The standard deduction was reintroduced in Budget 2018 to replace tax-free transport and medical allowances. It provides automatic tax relief without requiring detailed documentation. The key benefit of this deduction is its simplicity—it applies to all salaried individuals and pensioners without requiring them to submit proofs or detailed calculations.
Current Tax Regime Standard Deduction
- New Tax Regime (2023-24 onwards): ₹75,000
- Old Tax Regime: ₹50,000
Why Is a Hike Necessary?
- Rising Inflation: Prices of essentials like food, fuel, and housing continue to rise.
- Increased Cost of Living: Salaried individuals and pensioners struggle with daily expenses.
- Encouraging Taxpayers to Switch to the New Regime: Many taxpayers hesitate to adopt the new tax regime due to fewer deductions. Increasing the standard deduction would make it more attractive.
- Global Comparison: In countries like the US, UK, and Canada, standard deductions are significantly higher, reducing the tax burden on middle-class taxpayers.
- Relief to Pensioners: Pensioners, who rely on fixed incomes, would greatly benefit from an increased deduction, helping them cover medical and living costs better.
Why Should the Government Increase the Standard Deduction?
1. Relief from Rising Living Costs
With inflation hovering around 6%, expenses have shot up significantly. An increase in the standard deduction to ₹1,00,000 or more will provide direct financial relief to millions of taxpayers.
2. Boosting Disposable Income
A higher deduction means lower taxable income, leading to more take-home salary. This can boost spending, benefiting the economy.
3. Encouraging the New Tax Regime
The government is pushing for the new tax regime, but many taxpayers find it unattractive due to fewer deductions. A higher standard deduction could make it a viable alternative to the old regime.
4. Reducing Compliance Burden
Unlike other deductions that require proof (e.g., HRA, LTA, 80C investments), the standard deduction is automatic. Increasing it will simplify tax compliance and make tax filing easier for millions of individuals.
5. Standard Deduction in Other Countries
To better understand the necessity of a hike, let’s compare India’s standard deduction with some major economies:
| Country | Standard Deduction (Equivalent in ₹) |
|---|---|
| United States | ₹9,50,000 (for individuals) |
| United Kingdom | ₹15,00,000 (personal allowance) |
| Canada | ₹10,00,000 |
| India (Current) | ₹75,000 (new tax regime) |
| India (Proposed) | ₹1,00,000 (expected) |
What Experts Say
Sundeep Agarwal, Partner at Vialto Partners:
“The standard deduction should be increased to ₹1,00,000 to account for inflation and higher costs of living.”
Kuldip Kumar, Partner at Mainstay Tax Advisors LLP:
“Salaried employees don’t have expense claims like business owners. Increasing the deduction will level the playing field.”
Economic Analysts’ View
Economists argue that higher disposable income through tax relief will increase consumption, boosting economic growth. Some also believe that encouraging adoption of the new tax regime will simplify taxation in India over time.
Potential Budget 2025 Scenarios
1. No Change in Standard Deduction
- The government may focus on fiscal consolidation and avoid tax cuts.
- Salaried individuals may continue to bear the existing tax burden.
2. Standard Deduction Increased to ₹1,00,000 or More
- Provides tax relief.
- Encourages taxpayers to shift to the new tax regime.
- Reduces tax burdens, leading to higher savings.
3. New Tax Regime Becomes Default, With Higher Deductions
- The government may increase deductions in the new tax regime while keeping the old one unchanged.
- Could signal a long-term move towards tax simplification.
How Much Tax Can You Save?
Let’s assume the standard deduction is increased to ₹1,00,000. Here’s the potential impact:
| Annual Salary | Current Deduction (₹50K) | Proposed Deduction (₹1L) | Tax Saved (₹) |
|---|---|---|---|
| ₹10,00,000 | ₹50,000 | ₹1,00,000 | ₹15,000 |
| ₹15,00,000 | ₹50,000 | ₹1,00,000 | ₹30,000 |
| ₹20,00,000 | ₹50,000 | ₹1,00,000 | ₹45,000 |
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FAQs about Budget 2025: Will the Government Hike the Standard Deduction? Here’s Why It Should Happen?
1. What is the current standard deduction in India?
The standard deduction is ₹50,000 under the old tax regime and ₹75,000 under the new tax regime.
2. Will Budget 2025 increase the standard deduction?
While no official confirmation has been made, experts suggest an increase to ₹1,00,000 or more to provide relief from rising inflation.
3. How does the standard deduction benefit taxpayers?
It reduces taxable income, lowering the overall tax liability, leading to higher take-home pay.
4. Who is eligible for the standard deduction?
It applies to salaried individuals and pensioners under both tax regimes.
5. How does India’s standard deduction compare globally?
India’s standard deduction is significantly lower compared to countries like the United States, United Kingdom, and Canada, where it ranges between ₹9,50,000 to ₹15,00,000.
6. Where can I check official Budget 2025 updates?
Visit www.indiabudget.gov.in for the latest announcements and changes.
