Budget 2026: Taxpayers Eye Standard Deduction Relief
Finance Minister Nirmala Sitharaman will present the Union Budget 2026 on February 1. Taxpayers across India now wonder about potential changes to the standard deduction. This simple deduction reduces gross income for salaried individuals and pensioners. It offers straightforward tax relief without complex paperwork.
Current Standard Deduction Limits
The standard deduction varies between tax regimes. Under the old income tax regime, it remains fixed at Rs 50,000 for several years. The new income tax regime saw an increase to Rs 75,000 in Budget 2024. The government actively promotes adoption of this new regime. Any significant changes to standard deduction will likely focus here.
Recent years brought multiple adjustments to income tax slabs and rates in the new regime. These changes aim to attract more salaried taxpayers. Last year, Finance Minister Sitharaman made income up to Rs 12 lakh tax-free. Salaried taxpayers with standard deduction benefit enjoyed tax-free income up to Rs 12.75 lakh.
Government data reveals interesting trends. For the financial year 2023-24, seventy-two percent of taxpayers chose the new regime. This percentage will probably increase following last year's tax relief measures.
Experts Advocate for Standard Deduction Hike
Most tax experts surveyed believe the government should consider raising the standard deduction limit. They present compelling arguments for this increase.
Preeti Sharma, Partner at BDO India, explains the situation. "Salaried taxpayers currently get Rs 75,000 standard deduction under the new tax regime. This increased from Rs 50,000 in Budget 2025. While providing some relief, rising inflation and daily expenses reduce disposable income. A further increase would help employees manage these higher costs."
Radhika Viswanathan, Executive Director at Deloitte India, suggests a substantial hike. "A strong case exists for enhancing standard deduction under the new tax regime. No other major deductions or exemptions remain available to salaried individuals. The government could consider increasing the limit to Rs 1 lakh or even Rs 1.25 lakh. This increase would provide meaningful relief to middle-class taxpayers."
Experts highlight several reasons for raising the standard deduction:
- The new income tax regime lacks most deductions available under the old regime
- Higher limits would encourage more people to choose the simpler new regime
- Linking limits to inflation would maintain purchasing power
Labour Codes and Take-Home Pay Concerns
Chander Talreja, Partner at Vialto Partners, raises an important point about new labour codes. "Introduction of new labour codes may reduce take-home pay. An increase in standard deduction could help offset this impact. The government has limited options for further tax rationalization after last year's changes. Enhancing standard deduction remains a viable approach."
Talreja notes the current Rs 75,000 limit under the new personal tax regime. He suggests an increase of at least Rs 15,000 to address cost-of-living pressures.
Automatic Inflation Adjustment Proposal
Tanu Gupta, Partner at Mainstay Tax Advisors LLP, sees merit in increasing the standard deduction limit. "Last year's budget provided tax relief for income up to Rs 12 lakh. The objective was increasing disposable income to boost consumption. However, the standard deduction has remained unchanged since Budget 2024."
Gupta proposes an innovative solution. "There is merit in automatically adjusting this limit each year for inflation. Similar to government's periodic revision of Dearness Allowance for employees. Such simplicity with automatic inflation adjustment would make the regime more taxpayer-friendly."
Parizad Sirwalla, Partner at KPMG India, supports this view. "Salaried taxpayers lack avenues to claim deductions for increased living costs. There is ongoing expectation that standard deduction enhances periodically considering inflation rates."
Why Government Might Not Increase the Limit
Despite strong arguments for hiking standard deduction, some experts express doubts about immediate changes. Fiscal constraints and recent reforms create limitations.
Richa Sawhney, Partner at Grant Thornton Bharat, explains the government's position. "Salaried taxpayers feel they pay more taxes than those with business income. Standard deduction aims to compensate for employment-related expenses. While taxpayers desire a hike from the current Rs 75,000 limit, further enhancement may not prove feasible this year."
Sawhney highlights practical considerations. "The standard deduction increased just last year. Softening gross non-corporate tax collections post reforms makes additional hikes challenging."
Surabhi Marwah, Tax Partner at EY India, shares similar perspective. "A further hike in standard deduction appears unlikely in the near term. Budget 2024 already increased it to Rs 75,000 under the new regime. This differential provides clear incentive for taxpayers to shift to the new regime."
Marwah adds important context. "With the Income-tax Act 2025 focusing on structural simplification, priority now centers on wider adoption rather than additional reliefs."
Balancing Taxpayer Expectations and Fiscal Reality
The debate around standard deduction highlights competing priorities. Taxpayers seek relief from inflation and reduced take-home pay. The government must balance these expectations with fiscal responsibility and tax reform objectives.
As Budget Day approaches, all eyes turn to North Block. Will Finance Minister Sitharaman provide the standard deduction hike many taxpayers desire? Or will fiscal constraints and reform priorities dictate a different approach? The answer awaits on February 1.
