Budget 2025 income tax expectations: With Finance Minister Nirmala Sitharaman set to deliver the Union Budget 2025 speech on February 1, 2025, salaried and middle class taxpayers are looking to the Modi 3.0 government for income tax relief, especially under the new income tax regime.
The new income tax regime, introduced in FY 2020-21, has steadily seen changes with more favourable income tax slabs and rates, introduction of standard deduction and benefits for NPS. In Budget 2024, FM Sitharaman announced a hike of Rs 25,000 in standard deduction from Rs 50,000 to Rs 75,000 under the new income tax regime. The standard deduction under the old income tax regime, however, continues to be the same at Rs 50,000.
Standard deduction is a flat deduction available on the salary income that helps reduce the taxable income of a taxpayer. With the new income tax regime being the default tax regime, and the government pushing for its adoption, taxpayers are looking to FM Sitharaman to increase the standard deduction limit further.
Budget 2025: Why standard deduction should be hiked
Personal tax experts are of the view that since no major exemptions and deductions are available under the new income tax regime, there is a strong case to hike the standard deduction to encourage further adoption. One expert even recommends considering standard deduction as a fixed percentage of income.
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Sundeep Agarwal, Partner, Vialto Partners says, “With rising living costs, the standard deduction under the new tax regime should be increased from Rs 75,000 to Rs 1,00,000. This hike would make the new income tax regime more attractive, considering no other deductions/exemptions are allowed.”
According to Agarwal, raising the standard deduction would provide relief across income groups while keeping the tax system simple. “It would enhance disposable income, stimulate spending, and support economic growth while addressing inflationary pressures,” he tells TOI.
Kuldip Kumar, Partner, Mainstay Tax Advisors LLP also believes that raising the standard deduction from Rs 75,000 to Rs 100,000 could provide relief to the salaried class.
“There is merit in this demand, as professionals/businesspeople can claim actual expenses incurred against the income they earn from their profession/business. Even those eligible for presumptive taxation benefit from a large amount of assumed expenditure, as a much lower amount is presumed to be their income for taxation purposes,” he tells TOI.
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“In comparison, salaried class taxpayers under the new tax regime have no deductions available, except for the standard deduction or the employer’s contribution to the NPS. This does not result in equitable treatment for salaried taxpayers compared to others,” he adds.
Sudhakar Sethuraman, Partner, Deloitte India says that the government can also consider providing standard deduction as a fixed percentage to the income like that of standard deduction of 30% on rental income. “Allocating fixed percentage brings equity across various income levels,” he tells TOI.
Surabhi Marwah, Tax Partner, EY India says that since there are no major deductions or exemptions available under the new tax regime, there is a strong case for increasing the standard deduction further to make the new tax regime attractive. “An increase could potentially lower taxable income, providing significant relief, particularly for individuals in lower to middle-income brackets,” she says.
Tax experts are also of the view that any further hike in standard deduction under the old income tax regime is unlikely since the government is looking to encourage adoption of the new income tax regime.
“While an increase in the standard deduction would be a welcome measure under the old tax regime, given the Government’s focus on increasing the uptake of the new tax regime, it seems unlikely that there will be an increase in standard deduction under the old tax regime,” says EY’s Surabhi Marwah.
