 "Budget 2024: Rise in standard deduction limit likely in new tax system")
Ahead of the upcoming Union Budget 2024, reports suggest that the Ministry of Finance is considering the possibility of increasing the standard deduction threshold for taxpayers in the new tax system, according to a report by The Times of India.
What is standard deduction?
The standard deduction represents a portion of the total income that is not subject to taxation. It serves as a comprehensive allowance for tax deductions available to salaried employees.
All salaried individuals liable for taxes qualify for the standard deduction. Its primary aim is to simplify the process for employers by eliminating the need to collect receipts from employees for tax exemptions.
According to the report, the government has chosen to leave the older regime, which includes exemptions, unchanged.
The news report mentions that the government is in favour of granting concessions to taxpayers, particularly the middle class. This demographic has historically supported the Modi administration but is now more critical of the benefits received in exchange for their tax contributions, such as in public healthcare and education, the report further said.
Union Budget 2023
In the 2023 Budget, Finance Minister Nirmala Sitharaman implemented several changes to the tax system aimed at benefiting salaried taxpayers and pensioners. A standard deduction of Rs 50,000 was introduced for these groups under the new tax regime, which became the default option unless individuals chose otherwise.
Additionally, rebates were enhanced for taxable incomes not exceeding Rs 7,00,000, allowing those within this bracket to avoid paying any tax under the new regime. The highest surcharge was also eliminated.
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Currently, individuals earning above Rs 3,00,000 in taxable income are subject to a 5 per cent income tax rate.
The report quoted industry experts as calling for adjustments to tax rates in higher income brackets to stimulate consumption.
The report noted that increasing the standard deduction would benefit all salaried taxpayers, including those in higher income brackets, despite resulting in some loss of government revenue.
As the National Democratic Alliance (NDA) government prepares to present its third-term Budget, significant changes to the capital gains mechanism are unlikely, despite calls from the income tax department for a review.
Reports show that suggestions have been made to standardise the holding period across different asset classes, but the government may choose not to disrupt the current system, at least for now, the report said.