What Is Standard Deduction Benefit In New Tax Regime That Helps Raise Income Tax Slab?

Finance Minister Nirmala Sitharaman announced a major tax relief by raising the tax slab under the new tax regime for the salaried class, enhancing the income tax exemption limit to Rs 12 L annually.

Union Finance Minister Nirmala Sitharaman on Saturday announced a major relief for the salaried class. The salaried class will be shielded from paying income tax up to Rs 12 lakh per annum. The relief is enhanced effectively up to Rs 12.75 lakh when the standard deduction is considered.  

So what is this standard deduction which is a major support to the salaried class?

Standard deduction is a provision in income tax designed to simplify tax calculations for salaried individuals and pensioners. Introduced in 2018 under Arun Jaitley, the standard deduction allows taxpayers to reduce their taxable income by a fixed amount, thus lowering their overall tax liability without the need for extensive documentation.

The standard deduction is a flat deduction that was initially set at Rs 40,000 in the Union Budget of 2018 and later increased to Rs 50,000 in 2019. In the 2024-25 Budget, Finance Minister Nirmala Sitharman raised the standard deduction to Rs 75,000 under the new tax regime.

The primary aim of this provision is to ease the burden on taxpayers by eliminating the need for them to provide proof for various allowances such as transport and medical reimbursements.

Who Benefits From Standard Deduction In Income Tax?  

All salaried individuals and pensioners are eligible for the standard deduction. This is irrespective of their total income or the requirement of documentation for transport or medical expenses. Standard Deduction in Income Tax covers government employees, private sector workers, and retirees receiving pensions.

However, individuals opting for the new tax regime under Section 115BAC of the Income Tax Act cannot claim this deduction if they choose to pay tax at a lower rate.

Tax Calculation With Standard Deduction

The standard deduction directly reduces the taxable income. For instance, if an individual has a gross salary of Rs 10 lakh and claims a standard deduction of Rs 75,000 under the new regime, their taxable income would be reduced to Rs 9.25 lakh. This reduction can lead to substantial tax savings, especially for those in the higher tax brackets.