As the presentation of Budget 2024-25 looms, Finance Minister Nirmala Sitharaman faces increasing pressure to address a significant concern for middle-class India: the stagnant standard deduction. Since its introduction in 2018, this fixed deduction of ₹50,000 has remained unchanged, despite the escalating cost of living and persistent inflation. Experts like Lokesh Shah and Gaurav Goyal of INDUSLAW highlight the inadequacy of this deduction in today’s economic climate, advocating for its revision to reflect current financial realities.
“The current legal regime provides for a standard deduction of ₹50,000 to all salaried individuals. The increased inflation rates create a need to increase the limit of the standard deduction,” they told Business Today.
Anticipation is building around the possibility of doubling this deduction to ₹1 lakh in the upcoming budget, a move that could offer much-needed financial relief to salaried individuals. The standard deduction is a straightforward reduction from taxable income under the ‘salaries’ category, requiring no additional disclosures or proof of investment. This simplicity has made it a vital form of tax relief for the middle class. However, despite the widespread calls for an increase, Sitharaman has indicated that significant changes might only be considered in the full Budget.
Consultancy firm KPMG has outlined several changes expected in the upcoming Budget, including the doubling of the standard deduction. KPMG emphasizes the significant rise in personal expenses, such as medical costs and fuel, underscoring the necessity of raising the standard deduction to ₹1 lakh. This adjustment would provide essential financial relief to the middle class, helping them better manage their finances amid rising costs.
In addition to the standard deduction, there is a strong call to increase the basic tax exemption limit under the new tax regime from ₹3 lakh to ₹5 lakh. This change would enhance net disposable income, enabling individuals to either spend more or save more, thus boosting the overall economy. Moreover, KPMG suggests enhancing the deduction for interest on self-occupied housing loans to at least ₹3 lakh under the old tax regime or allowing similar benefits under the new regime. This would support the real estate sector, which is under pressure from rising interest rates and regulatory reforms.
Furthermore, the capital gains tax structure in India is notoriously complex, with different rates for various assets. Simplifying this system to provide a more uniform capital gains tax structure, both in terms of holding periods and tax rates, would align with the government’s objective of streamlining the tax code.
The middle class is keenly awaiting the Budget 2024-25, hoping for a more responsive and inflation-adjusted standard deduction. Doubling the standard deduction would be a significant step towards alleviating the financial burden on salaried individuals, offering them a tangible form of relief in these challenging economic times. As the budget announcement approaches, the question remains: Will Nirmala Sitharaman address middle-class India’s biggest tax gripe and implement these much-needed changes? The answer will significantly impact millions of middle-class taxpayers who are counting on this revision to ease their financial strain.