The recent announcement by Finance Minister of India Nirmala Sitharaman to increase the standard deduction to Rs 75,000 has come as a huge relief to taxpayers under both the new and old tax regimes. The move aims to reduce the tax burden and provide more disposable income for salaried individuals and pensioners to make them more comfortable. We will discuss in depth what this change means for taxpayers, how it affects your tax calculations, and what else you should know about the new and old tax regimes.
Standard Deduction Increased to Rs. 75,000: Relief in New & Old Tax Regime
What is standard deduction?
The standard deduction is a fixed amount deducted from your income before calculating taxable income. It replaces expenses such as travel and medical allowances, making tax calculations much simpler for salaried individuals and pensioners. Earlier, the standard deduction was fixed at Rs. 50,000.
Key Highlights:
- Increased Limit:
- The standard deduction has been raised to Rs. 75,000.
- This increase is applicable to both the new and old tax regimes.
- Beneficiaries:
- Salaried individuals.
- Pensioners.
- Ease of Calculation:
- No need to provide separate proof for claiming this deduction.
Impact on Taxpayers
Under the Old Tax Regime:
The old tax regime allows taxpayers to claim various exemptions and deductions, such as:
- House Rent Allowance (HRA).
- Deductions under Section 80C, 80D, and more.
With the standard deduction increased to Rs. 75,000, taxpayers in this regime can reduce their taxable income further, especially when combined with other exemptions.
Under the New Tax Regime:
The new tax regime focuses on lower tax rates with minimal exemptions. However, the increased standard deduction provides some relief:
- Salaried individuals and pensioners can still benefit from the Rs. 75,000 deduction without opting for other exemptions.
- This makes the new regime more attractive for taxpayers with fewer investments or deductions.
Tax Savings Calculation
Let’s illustrate the impact of the increased standard deduction with an example:
| Income Source | Old Deduction (Rs.50,000) | New Deduction (Rs.75,000) |
|---|---|---|
| Gross Salary (Rs.6,00,000) | Rs.5,50,000 | Rs.5,25,000 |
| Taxable Income | Rs. 5,50,000 | Rs.5,25,000 |
| Tax Savings | Rs.30,000 | Rs.45,000 |
The increased deduction reduces taxable income by Rs. 25,000, translating into significant savings depending on the tax slab.
Choosing Between New and Old Tax Regime
When deciding between the two regimes, consider the following:
- Income Level:
- High-income earners with significant investments may benefit more from the old regime.
- Salaried individuals with minimal deductions may prefer the new regime.
- Investment Habits:
- Taxpayers who utilize exemptions like HRA or Section 80C should evaluate the benefits of the old regime.
- Tax Calculation Tools:
- Use online calculators to compare tax liabilities under both regimes.
FAQs: Standard Deduction Increased to Rs. 75,000
Salaried individuals and pensioners are eligible for this deduction under both the new and old tax regimes.
No, the standard deduction is a flat deduction that doesn’t require proof or documentation.
1. In the old regime, you can claim this deduction alongside other exemptions like HRA and Section 80C deductions.
2. In the new regime, the standard deduction is available but other exemptions are limited.
Pensioners, who often have limited exemptions, can benefit significantly as the Rs. 75,000 deduction directly reduces their taxable income.
The suitability of a regime depends on your income level, investment habits, and eligibility for other deductions.
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