Budget 2025: How has standard deduction evolved over the years? A timeline

Standard Deduction: Income taxpayers can lower their income without providing any documentation or disclosures by using the standard deduction, which is a fixed sum subtracted from taxable salary income. After being eliminated for several years, the standard deduction provision was reinstated in the 2018 budget announcement. Under Section 16 of the Income Tax Act of 1961, it was initially implemented in 1974.

History of standard deduction

• The standard deduction was introduced in 1974 to simplify tax calculations for salaried individuals.
• Tax experts say that over the years, the standard deduction percentage and maximum limit were revised multiple times.
• The standard deduction was eliminated by Finance Minister P Chidambaram during the 2005–06 fiscal year. The explanation offered was that it was unnecessary due to the expansion of income tax slabs and general exemption limits.

"In FY 2004-05, salaried individuals could claim a standard deduction of ₹30,000 or 40 per cent of their salary, whichever was lower, provided their annual income did not exceed ₹5 lakh. For those earning above ₹5 lakh, the standard deduction was ₹20,000. However, this deduction was withdrawn starting from FY 2005-06," said Balwant Jain, a Mumbai-based tax and investment expert.

• After a 13-year gap, the standard deduction was reintroduced in Budget 2018 at ₹40,000.
• The deduction was further increased to ₹50,000 in Budget 2019.
• The standard deduction was initially unavailable under the new tax scheme. Budget 2023, however, also permitted anyone who chose the new tax regime to use the ₹50,000 basic deductions.
•  A significant change came with Budget 2024, where the standard deduction under the new tax regime was increased to ₹75,000. 
• The standard deduction under the old tax regime is ₹50,000.

Who is eligible for the standard deduction?

All salaried employees are eligible for the standard deduction, regardless of their salary amount.

Benefits of standard deduction

1)To claim this deduction, you don't have to maintain documentation or provide evidence of various expenses, including investments, medical bills, or travel receipts.

2)The standard deduction directly lowers your taxable income by deducting a fixed amount from your gross income. 

3)The standard deduction is available to most salaried individuals and pensioners.

It remains to be seen whether the standard deduction will be further changed in Budget 2025, especially considering the different amounts available under the two tax regimes.

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