Budget 2024: Finance Minister Nirmala Sitharaman is all set to present the full budget for the ongoing financial year in July and expectations are already on the rise. Experts have called for a host of tax relief measures, one of which is the possibility of a reduction in standard deduction limit for taxpayers under the new tax regime.
Currently, a standard deduction of Rs 50,000 is applicable under both the old and new income tax regime.
Since the government is looking at measures to boost consumption, several experts believe that there are chances that this limit could get a slight increase.
However, this increase may only be applicable under the new tax regime as the government wants more people to ditch the old regime.
The government could also opt to boost the exemption limit under the new tax regime instead of tinkering with the standard deduction limit. Both measures will be hugely beneficial for the middle class.
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What is standard deduction?
The standard deduction is a fixed amount that employed individuals can subtract from their taxable salary income without needing to provide evidence of actual expenses.
This deduction aims to create fairness between individuals who earn income from a salary and those who earn income from a business. It is applicable in both the old and new income tax systems.
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How will higher standard deduction help taxpayers?
Since most deductions and exemptions are not allowed under the new tax regime, increasing the standard deduction is crucial.
This change will encourage more people to opt for the new regime, as the standard deduction is likely the only deduction most people can claim under the new system.
As the cost of living rises due to inflation, raising the standard deduction can help protect the purchasing power of individuals, particularly those with fixed incomes like pensions.
A higher standard deduction makes the tax system fairer by providing more tax relief, especially for lower and middle-income groups.
It can also increase consumer spending by lowering the amount of taxed income, thereby boosting economic growth.
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