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As the Union Budget 2025 approaches, there’s growing anticipation among salaried employees and pensioners for a potential rise in the standard deduction limit. Experts predict this adjustment could help ease financial pressures amidst rising inflation and improve tax compliance.
Currently, under the new tax regime, the standard deduction stands at ₹75,000, while under the old regime, it is ₹50,000. This deduction reduces taxable income without requiring supporting documentation. With inflation squeezing household budgets, many are hopeful that the standard deduction will be increased to provide relief and stimulate consumer spending.
1. Why the Standard Deduction Needs an Increase
Since its reintroduction in FY 2018-19, the standard deduction has been a fixed benefit, replacing transport allowances and medical reimbursements. However, with the rising costs of transport, healthcare, and living, experts argue that the current deduction limits no longer offer sufficient relief.
Santosh Sivaraj, Partner at BDO India, emphasized that the standard deduction should be raised to ₹1.2 lakh to account for average annual transport and medical expenses.
2. What Can Budget 2025 Bring?
Harsh Bhuta, Partner at Bhuta Shah & Co, believes that the government might increase the standard deduction to ₹1 lakh for both tax regimes. This move would directly benefit taxpayers by lowering their tax liabilities, thus boosting disposable income and potentially stimulating demand across sectors.
Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, also supports an increase in the new tax regime’s standard deduction, stating it would simplify tax filing and align with the government’s goal of making tax compliance easier.
Aurelia Menezes, Partner at King Stubb & Kasiva, echoed similar sentiments, predicting that public dissatisfaction with high taxes could push the government to introduce tax relief measures, including a higher standard deduction.
3. Relief for the Middle Class
An increase in the standard deduction would be particularly beneficial for the middle-class salaried individuals, especially those in Tier 1 cities where the cost of living is high. Ruchika Bhagat, MD at Neeraj Bhagat & Co., believes that this hike would provide much-needed financial relief, particularly given the ongoing inflation, and could also boost consumer spending, which would have a positive effect on the economy.
4. Benefits for Pensioners
Pensioners, who can also claim the standard deduction, would significantly benefit from an increase. A higher deduction would ease their financial burdens, particularly those with medical and living expenses that are mainly covered by their pension income.
5. Broader Economic Impact
An increase in the standard deduction would support the government’s economic strategy by stimulating consumption, boosting GDP growth, and aiding in recovery from both global and domestic economic challenges. Enhanced disposable income could drive spending across various sectors, benefiting the economy as a whole.
While the optimism is high, the final decision will depend on the government’s fiscal priorities and ability to balance populist measures with economic prudence. A higher standard deduction would not only provide tax relief but also help align tax policies with the increasing cost of living.
As taxpayers await the Budget announcement, the key question remains: will the government deliver on this much-needed reform? A favorable decision could have a meaningful financial impact on millions of salaried individuals and pensioners, while contributing to the country’s broader economic growth.
(Inputs from Agencies)
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