The last Budget didn’t make any change in the old tax regime, but announced some tweaks in the new tax regime to make it more attractive. It widened two income tax slabs and raised the standard deduction from Rs 50,000 to Rs 75,000 under the new regime.
While the government sets the tax-free limits for allowances that salaried employees can avail of, these employees face another challenge with reimbursement claims. Many companies impose caps on reimbursable expenses, limiting the financial benefits employees can claim.
To help salaried employees, the standard deduction allows for a flat deduction from salary income, compensating for some typical employment-related expenses. In India, the standard deduction was abolished in 2005. Previously, it allowed salaried employees to claim a flat deduction from salary income of Rs 30,000 or 40% of salary (if the salary did not exceed Rs 5 lakh) or a deduction of Rs 20,000 (if the salary exceeded Rs 5 lakh).
The standard deduction was reinstated in Budget 2018 and increased to Rs 50,000 in the interim Budget 2019. The Finance Minister further extended relief to individual taxpayers by introducing a standard deduction of Rs 50,000 and extending the deduction from family pensions up to Rs 15,000 in the new tax regime, which was previously limited to salaried individuals in the old tax regime. The Budget for 2023 also broadened tax advantages for salaried individuals, with those earning a salary of Rs 15.5 lakh or more standing to benefit by Rs 52,500.
As per Section 16(ia) of the Income Tax Act of 1961, every salaried taxpayer is permitted a maximum deduction of up to Rs 50,000. This standard deduction is also applicable to taxpayers receiving pension income, providing financial relief across different taxpayer categories.
