For middle-class taxpayers, the standard deduction is still an essential but out-of-date tax break in the face of growing living expenses and inflation.
According to Lokesh Shah and Gaurav Goyal of INDUSLAW, this set deduction, which has remained at ₹50,000 since 2018, does not take into account the current state of the economy and increases the financial strain on salaried individuals.
“The current legal regime provides for a standard deduction of Rs 50,000 to all salaried individuals. The increased inflation rates create a need to increase the limit of the standard deduction,” they told BT.
As Budget 2024-25 approaches, there is growing anticipation for a revision that could double this deduction to ₹1 lakh, providing much-needed relief.
The standard deduction, a straightforward reduction from taxable income under the ‘salaries’ category, currently requires no additional disclosures or proof of investment. Despite expectations for an increase, Finance Minister Nirmala Sitharaman has indicated that significant changes will be considered only in the full Budget.
In its list of changes in the upcoming Budget, consultancy firm KPMG sees doubling standard deduction, increasing the tax break on interest paid on housing loans, and rationalizing the capital gains tax regime.
KPMG highlights the significant rise in personal expenses such as medical costs and fuel, underscoring the need to raise the standard deduction to ₹1 lakh. This adjustment would provide essential financial relief to the middle class.
Additionally, there is a strong call to increase the basic tax exemption limit under the default new tax regime from ₹3 lakh to ₹5 lakh. This change would enhance net disposable income, enabling individuals to spend more or save more, thus boosting the economy.
KPMG also suggests enhancing the deduction for interest on self-occupied housing loans to at least ₹3 lakh under the old tax regime or allowing similar benefits under the new regime. This would support the real estate sector, which is under pressure from rising interest rates and regulatory reforms.
Moreover, the capital gains tax structure in India is complex, with different rates for various assets. Simplifying this system to provide a more uniform capital gains tax structure, both in terms of holding periods and tax rates, would align with the government’s objective of streamlining the tax code.
As the middle class awaits the Budget 2024-25, there is hope for a more responsive and inflation-adjusted standard deduction.
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Source: BT
