Union Finance Minister Nirmala Sitharaman will present the full-year Budget 2023 on February 1, 2023. Citizens are awaiting the Budget announcements related to several tax changes, including the one on increase in the limit of standard deduction. Currently, a deduction of Rs 50,000 is provided to each and every employee irrespective of their cost to company (CTC). Now, experts want this limit raised to Rs 1 lakh.
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“The standard deduction for salaried employees should be increased to reduce the employees' tax burden under section 16 of Income Tax Act. Unlike the taxation of gains from certain asset classes, the income tax slabs have not been significantly raised over the years. The cost of living has gone up but the purchasing power of salaried people has reduced significantly. As a result, many lower-income salaried individuals have found themselves pushed into higher tax brackets, despite their relatively modest income. So, we can expect that the standard deduction will be increased to Rs 1 lakh in Budget 2023," said Neha Nagar- Finfluencer and Founder at TaxationHelp, in an interaction with CNBC-TV18.com.
ALSO READ | Personal income tax regime needs a complete 'reinvent': Revenue Secretary Tarun Bajaj ahead of Budget 2023
This increase is intended to help reduce the tax burden on salaried employees.
"It is important for the government to support lower-income individuals and ensure that they are not excessively burdened by taxes, especially in times of economic uncertainty," Nagar said.
Niyati Mavinkurve, Digital Content Creator and Co-founder of Let's Make You Rich; and CA Ruchika Bhagat, MD at Neeraj Bhagat & Co, also echoed similar views.
Mavinkurve said that salaried employees are the ones that shoulder India’s tax burden because they have no choice.
"The expectation from them is always to reduce this burden and as the standard deduction absorbs transport and medical allowance, both of which see cost increases because of inflation. I feel we should link these allowances to inflation so that they automatically increase every few years to reflect the true cost of living in the country," she added.
As per the Reserve Bank of India's (RBI's) estimates, annual inflation is seen cooling to 5.9 percent in January-March and 5 percent in April-June 2023 but is set to rise to 5.4 percent in the subsequent three months.
The standard deduction limit was last revised in the 2019-20 financial year. So, Bhagat also believes that this should be changed this time considering inflation.
The interim budget presented on February 1, 2019 included numerous tax benefits for the salaried and the middle class. Among those was an additional amount of Rs 10,000 (increased from Rs 40,000) to the standard deduction limit. No change was made in Budget 2020 and 2021.
It's important to note here that Budget 2020 introduced new tax regime. Under this, the taxpayers have an option to pay concessional tax rates. However major deductions and exemptions are not allowed under this new regime, which includes standard deduction.
Particularts | Old Tax regime (FY 2021-22) | New tax regime (FY 2021-22) |
Salary income | Rs 5,00,000 | Rs 5,00,000 |
Standatd Deduction | Rs 50,00) | N.A |
Taxable salary | Rs 4,50,000 | Rs 5,00,000 |
First Published: Jan 5, 2023 5:12 PM IST
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