Budget 2025 for salaried employees: Inflation-linked basic exemption, standard deduction expected

In the run-up to the budget, several proposals expected to be announced by the finance minister have been reported by the media and discussed by tax experts.

Inflation-adjusted basic exemption

“With inflation on the rise, impacting the cost of living and diminishing purchasing power, there is increasing advocacy among taxpayers and economists for adjustments to tax slabs that accurately reflect these economic realities,” said Dr Surana.

“Inflation-adjusted slabs are seen as a means to uphold fairness in the tax system, ensuring that taxpayers are not pushed into higher tax brackets solely due to inflation-driven increases in their nominal incomes,” he added.

In a recent interview with The Hindu Businessline, Rakesh Nangia, Managing Partner at Nangia & Co LLP, said taxpayers may find the tax "slabs going down in the new regime" and the government may propose an “inflation-adjusted basic exemption.”

Standard deduction linked to inflation

The ICAI said that the standard deduction may be increased "keeping in mind the rate of inflation and purchasing power of the salaried individuals". It further said that standard deduction may be linked to the cost-inflation index.

Currently, salaried taxpayers can claim a standard deduction of ₹75,000 under the new tax regime and ₹50,000 under the old regime.

Explaining its recommendation, the ICAI stated that the current standard deduction fails to reflect the increasing cost of living and modern-day expenses employees incur.

Tax experts believe that providing inflation-adjusted tax relief to salaried employees will promote greater compliance and improve public perception of the tax regime.

“The prospect of introducing inflation-adjusted income tax slabs in Budget 2025 represents a significant opportunity to strengthen fairness and equity within India's taxation framework. By addressing the effects of inflation on the real incomes of taxpayers, such reforms have the potential to promote greater compliance and improve public perception of the tax regime,” said CA Dr Suresh Surana.

However, he added that careful consideration of implementation challenges and potential fiscal impacts is essential.