Union Budget 2025: Will Standard Deduction Increase to Rs 1 Lakh?
Union Budget 2025: Will Standard Deduction Increase to Rs 1 Lakh?
![Union Budget 2025: Will Standard Deduction Increase to Rs 1 Lakh? Union Budget 2025: Will Standard Deduction Increase to Rs 1 Lakh?](https://assets.thehansindia.com/h-upload/2025/01/27/1518080-union-budget-2025-what-to-expect-on-tax-exemptions-and-deductions.webp)
The Modi 3.0 government is preparing to present its first full-fledged Union Budget for the financial year 2025-26 in the coming days. With the coalition government in place and crucial elections approaching in Bihar, where Janata Dal (United) holds power, expectations are high for measures aimed at benefiting taxpayers. Among the anticipated announcements is an effort to make the new income tax regime more appealing by enhancing standard deductions.
The government initially introduced the new income tax framework in the 2020-21 financial year. Since then, modifications have been made to attract more taxpayers. In the 2024 budget, the standard deduction was raised from Rs 50,000 to Rs 75,000, along with additional benefits under the National Pension Scheme (NPS). Under the previous tax regime, the deduction remained at Rs 50,000.
Standard deductions are subtracted from salaried income before tax calculations, reducing taxable earnings. This particularly benefits those in higher tax brackets. The new tax regime is now the default system, though individuals have the option to revert to the older structure if preferred.
Tax professionals have expressed concerns over the limited exemptions and deductions in the new tax system. Raising the standard deduction is viewed as a strategic move to encourage more taxpayers to transition to the revised framework. Simplifying tax processes while ensuring relief for various income groups remains a key focus.
There is growing demand for the standard deduction to be increased to Rs 1,00,000 in the upcoming budget. Additionally, discussions are underway regarding a percentage-based reduction in taxable income. Business owners and professionals currently deduct operational expenses while filing taxes, and experts argue that salaried employees should similarly benefit from deductions to account for rising costs. Such a revision would provide significant relief to middle-class and lower-income wage earners.
The standard deduction was first introduced in 1974 under Section 16 of the Income Tax Act to streamline tax calculations and ease financial burdens on employees. It was initially designed to cover travel and medical expenses incurred for work-related purposes. However, in 2005, the provision was removed entirely, leaving salaried individuals without tax relief for over a decade.
In 2018, the standard deduction was reinstated at Rs 40,000, replacing travel and medical reimbursements of Rs 19,200 and Rs 15,000, respectively. The following year, it was raised to Rs 50,000 in the interim budget. In 2023, the deduction was incorporated into the new tax regime, and in 2024, it was further increased to Rs 75,000. The old tax structure, however, remained unchanged.
As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2025, taxpayers are anticipating further reforms. The government’s approach to income tax adjustments will be closely monitored, particularly with the possibility of a higher standard deduction. These changes could influence tax-saving strategies and impact disposable income for millions of salaried individuals.