Income tax relief: Will Budget 2024 increase standard deduction under new income tax regime?

The finance ministry is considering raising the standard deduction limit for income taxpayers under the new regime, without changing the tax exemption-heavy old regime. The NDA government is preparing to present its first Budget of its third term. It is unlikely to make major changes in the capital gains mechanism, an issue the income tax department has been seeking a review on. There have been suggestions to align the holding period across asset classes, but the government may not be inclined to disturb the system, at least for the moment. This information was reported by Sidhartha of the Times of India.

Discussions on the contours of the Budget on the Budget have just started, with Finance Minister Nirmala Sitharaman leading the discussions. The finance ministry is currently evaluating various issues and will seek input from other government departments before making final decisions based on feedback from the PMO.

Most government departments favor tax breaks for taxpayers, especially the middle class. This group has been a supporter of the Modi regime but is now voicing concerns about the benefits they receive for the taxes they pay, such as public healthcare and education as reported by the Times of India.

In the 2023 Budget, the Finance Minister introduced a standard deduction of Rs 50,000 for salaried taxpayers and individuals receiving pensions under the new tax regime. This standard deduction became the default option, unless taxpayers opted out. Additionally, the rebate under Section 87A was increased for taxable incomes not exceeding Rs 7 lakh under the new tax regime. This change allowed individuals with taxable incomes up to this level to be exempt from paying taxes under the new regime. Furthermore, the highest surcharge under the new regime was also eliminated from the tax structure.

Individuals with a taxable income of over Rs 3 lakh currently have to pay 5% income tax. Industry leaders have proposed adjusting the tax rates for higher income brackets to stimulate spending. Increasing the standard deduction will benefit all salaried taxpayers, including higher-income earners, even though it will result in some lost revenue.