Middle Class Relief: Finance Minister Nirmala Sitharaman Increases Standard Deduction and Adjusts Tax Slabs

In a move to benefit the middle class, Finance Minister Nirmala Sitharaman announced on Tuesday a 50 percent increase in the standard deduction, raising it to Rs 75,000, along with adjustments to the tax slabs under the new income tax regime

These changes are designed to put more money in the hands of salaried individuals and boost consumption.

According to Sitharaman, salaried employees using the new tax regime can save up to Rs 17,500 annually in income taxes following the changes introduced in the Budget.

The standard deduction for salaried employees is set to rise from Rs 50,000 to Rs 75,000 per year. Additionally, the deduction for family pension for pensioners is proposed to increase from Rs 15,000 to Rs 25,000. “This will provide relief to about four crore salaried individuals and pensioners,” Sitharaman stated during her Budget speech.

In the last fiscal year, more than two-thirds of individual taxpayers opted for the new personal income tax regime, with over 8.61 crore income tax returns filed in the 2023-24 fiscal year.

The revised tax slabs under the new income tax regime will be effective from April 1, 2024 (Assessment Year 2025-26). Under this proposal, income up to Rs 3 lakh will remain exempt from income tax under the new regime.

The proposed tax structure includes a 5 percent tax on income between Rs 3-7 lakh, 10 percent for Rs 7-10 lakh, and 15 percent for Rs 10-12 lakh. Income between Rs 12-15 lakh will continue to be taxed at 20 percent, and a 30 percent tax will be levied on income above Rs 15 lakh.

Under the current new income tax regime, income between Rs 3-6 lakh is taxed at 5 percent, income between Rs 6-9 lakh is taxed at 10 percent, and income between Rs 9-12 lakh and Rs 12-15 lakh is taxed at 15 percent and 20 percent, respectively. A 30 percent tax applies to income exceeding Rs 15 lakh.

(With inputs from agency)