Standard Deduction Likely To Be Increased Under New Tax Laws

The finance ministry is considering the option of increasing the standard deduction limit for taxpayers in the new income tax regime, while maintaining the existing exemptions in the older regime. Additionally, as the NDA government prepares to present its first Budget of its third term, it is unlikely to make significant changes to the capital gains taxation system, despite calls from the income tax department for a review. There have been proposals to align the holding period across different asset classes, but the government may refrain from disrupting the current system, at least for now.

Discussions on the Budget are in early stages, with Finance Minister Nirmala Sitharaman engaging in public consultations. The focus currently lies within the finance ministry, conducting internal assessments on various issues that will later be discussed with other government departments before final decisions are made, based on feedback from the Prime Minister’s Office.

Overall indications suggest that various government departments are inclined towards offering concessions to taxpayers, particularly the middle class. This group has historically supported the Modi government but is now questioning the benefits received in return for their tax contributions, such as in public healthcare and education.

In the 2023 Budget, the Finance Minister introduced a standard deduction of Rs 50,000 for salaried taxpayers and pension earners under the new tax regime, which became the default option unless opted out. Additionally, the rebate under Section 87A was increased for taxable incomes up to Rs 7 lakh, allowing those earning below this threshold to be exempt from tax under the new regime. The highest surcharge under the new regime was also eliminated.

Currently, individuals with taxable incomes exceeding Rs 3 lakh are subject to a 5% income tax rate, with industry leaders suggesting adjustments in higher tax brackets to stimulate consumption. A higher standard deduction would benefit all salaried taxpayers, including those in higher income brackets, despite potential revenue implications.