According to a CNBC Awaaz report, the Finance Ministry is considering increasing the standard deduction limit in the new tax regime. This adjustment is anticipated to be included in Finance Minister Nirmala Sitharaman’s first budget of her third term, following consultations across various government departments and the Prime Minister’s Office.

Understanding Standard Deduction

The standard deduction is a fixed amount that taxpayers can deduct from their taxable income without needing receipts or expense proofs. It serves to reduce taxable income, thereby lowering overall tax liability.

Current Proposal and Previous Measures

In the previous fiscal year’s budget, Finance Minister Nirmala Sitharaman proposed a standard deduction of ₹50,000 for salaried individuals and pensioners under the new tax regime. This deduction applies by default unless taxpayers opt-out. Additionally, the income threshold eligible for tax relief under Section 87A was raised to ₹7 lakh. The new regime also eliminated the highest surcharge, simplifying tax calculations.

However, experts suggest that given the current economic conditions, this limit may no longer be adequate. There is speculation that the government might raise it to ₹1 lakh or more to better align with present-day expenses and inflation rates.

Historical Changes in Standard Deduction