Hike Standard Deduction on salary to ₹1.2 lakh in both old and new tax regimes: Expert to FM

In Budget 2024, Finance Minister Nirmala Sitharaman increased the standard deduction on salary to ₹75,000 per annum for salaried employees and pensioners opting for the new tax regime.

However, the standard deduction for those under the old regime remained unchanged at ₹50,000.

"Owing to the inflation and increase in prices in both transport and medical since FY 2018-19, since the time standard deduction was reintroduced, the Hon’ble FM should look at bringing in parity for those opting for either the old or the new tax regime and increase the standard deduction to a minimum of ₹1.20 lakhs a year," said Santhosh Sivaraj, partner, Global Employer Services, Tax and Regulatory Services at BDO India.

"This would seem practical as any salaried taxpayer would be incurring ₹10,000 a month/₹1.20 lakh a year collectively towards transport and medical expenses," he added.

The standard deduction on salary was abolished in FY 2005-06. It was reintroduced in the 2018 budget by the then FM Late Arun Jaitley.

While reintroducing standard deduction, Jaitley said, “To provide relief to salaried taxpayers, I propose to allow a standard deduction of ₹40,000 instead of the present exemption regarding transport allowance and reimbursement of miscellaneous medical expenses...Apart from reducing paperwork and compliance, this will help middle-class employees even more in reducing their tax liability...”

While in the Financial Year 2018-19, there were no two separate tax regimes, the standard deduction of ₹40,000 was reintroduced as a standard deduction towards transport allowance and miscellaneous medical expenses, said Sivaraj.