Budget 2025: Evolution of Standard Deduction – A Timeline

The standard deduction is a fixed amount that salaried individuals can subtract from their taxable income without needing to provide any documentation or proof of expenses. First introduced in 1974 under Section 16 of the Income Tax Act, this deduction has undergone several changes over the years.

History of Standard Deduction

Introduction in 1974

The standard deduction was implemented in 1974 to simplify tax calculations for salaried taxpayers.

Multiple Revisions Over the Years

Tax experts highlight that the percentage and maximum limit of the standard deduction have been revised many times.

Elimination in 2005

In the 2005–06 fiscal year, Finance Minister P. Chidambaram removed the standard deduction, stating it was unnecessary due to the expansion of income tax slabs and exemption limits.

• In FY 2004-05, the standard deduction was ₹30,000 or 40% of salary (whichever was lower) for those earning up to ₹5 lakh annually.
• For individuals earning above ₹5 lakh, the deduction was limited to ₹20,000.
• From FY 2005-06, this benefit was discontinued.

Reintroduction in 2018

After a gap of 13 years, the standard deduction returned in Budget 2018 with a limit of ₹40,000.

Further Increases

• Budget 2019: Raised the deduction to ₹50,000.
• Budget 2023: Allowed individuals under the new tax regime to claim the ₹50,000 deduction.
• Budget 2024: Increased the deduction under the new tax regime to ₹75,000, while it remained ₹50,000 under the old regime.

Who Can Claim the Standard Deduction?

All salaried employees and pensioners are eligible for the standard deduction, regardless of their income level.

Benefits of the Standard Deduction

1. No Documentation Required
   Claiming this deduction does not require maintaining receipts or proof of expenses such as medical bills, travel costs, or investments.
2. Reduces Taxable Income
   It directly lowers taxable income by deducting a fixed amount from gross salary.
3. Wide Eligibility
   Most salaried employees and pensioners can avail themselves of this benefit.

What’s Next?

With Budget 2025 approaching, it remains to be seen if the standard deduction will be changed. The different limits under the old and new tax regimes may also be further aligned or revised.

Budget 2025: Key Details and Where to Watch

Union Finance Minister Nirmala Sitharaman will present the Union Budget for 2025 on Saturday, February 1. This will be her eighth consecutive budget presentation and the second full financial budget for Prime Minister Narendra Modi’s NDA government in its third term. Similar to previous years, the 2025 Budget will be presented in a paperless format.

The Union Budget outlines the government’s planned spending and income for the upcoming fiscal year, from April 1 to March 31. It also includes fiscal, spending, and economic policies, which have been part of the budget since 2019.

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