Union Budget 2024: New standard deduction limits
In a move aimed at boosting tax savings, the Finance Minister announced that the standard deduction limit under the new tax regime will be raised to Rs 75,000 for the current financial year, as per ET report.Additionally, the standard deduction for family pensioners has been increased from Rs 15,000 to Rs 25,000.
This adjustment marks the first increase in the standard deduction limit in five years. The last adjustment occurred in the Interim Budget of 2019, when the limit was raised to Rs 50,000, effective from April 1, 2019.
Impact on taxpayers
The hike in standard deduction will benefit salaried individuals and pensioners by reducing their taxable income, thereby lowering their tax liability. The standard deduction is a fixed amount that taxpayers can deduct from their gross income without needing to provide detailed expense proofs.
The new standard deduction of Rs 75,000 will be applicable under the new tax regime, while family pensioners will benefit from a higher deduction of Rs 25,000. It’s important to note that this standard deduction is available to individuals receiving salary or pension income. However, it does not apply to annuity payments from insurance companies, which are taxable under “Income from Other Sources.”
How to claim the standard deduction
Claiming the standard deduction is straightforward. Taxpayers do not need to submit any additional documentation to claim this deduction. It is automatically applied based on the salary or pension income reported in the income tax return.
Historical context of the standard deduction
The standard deduction was first introduced in the Income-tax Act of 1961, allowing a deduction of Rs 30,000 or 40% of salary (whichever was lower) for individuals with an annual income up to Rs 5 lakh. For those earning above Rs 5 lakh, the standard deduction was set at Rs 20,000. This deduction was withdrawn from the financial year 2005-06.
The standard deduction was reintroduced in Budget 2018 as a replacement for medical reimbursement and transport allowance, which were previously available deductions. Initially set at Rs 40,000, the deduction amount was increased to Rs 50,000 in the Interim Budget of 2019.
Also read | Budget 2024 has good news for NPS tax savings: Employer contributions increased from 10% to 14% of employee’s basic salary