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Union Minister Nirmala Sitharaman proposed sweeping change to India's income tax laws in the Union Budget 2025, the bill for which is likely to be tabled in the Parliament today.
The Income Tax Bill, 2025 will introduce changes in Standard Deduction, which will go on to benefit individual salaried taxpayers and pensioners.
Let us understand what Standard Deduction is:
What is Standard Deduction?
Standard Deduction is the fixed amount deducted from the gross income of an individual before calculating their taxable income.
This deduction is only available to salaried individuals and pensioners, and excludes incomes from businesses.
Comparison of Standard Deduction limits: Income Tax Act, 1961 vs Income Tax Bill, 2025
| Aspect | Income Tax Act, 1961 | Income Tax Bill, 2025 |
|---|---|---|
| Standard Deduction Amount | ₹50,000 | ₹75,000 |
| Applicability | Salaried employees and pensioners | Salaried employees and pensioners (same eligibility, higher deduction) |
| Additional Benefit for Senior Citizens | No extra benefit (flat ₹50,000) | Likely higher deduction for pensioners above 60 (awaiting confirmation) |
| Exemption for Business Income Earners? | Not available | Still not available |
| Effect on Taxable Income | Reduces taxable salary income by ₹50,000 | Higher deduction (₹75,000) further lowers taxable salary income |
Who benefits from this change?
Salaried individuals and pensioners are the ones who will mostly benefit from the new Standard Deduction limit. Higher deduction will mean lower taxable income for both sections.
The middle-class taxpayers will thus benefit if lower taxes are cut, helping beat inflation and the rising cost of living.
An example
Under Income Tax Act, 1961
Income: Rs 10,00,000
Standard Deduction: Rs 50,000
Taxable income: Rs 9,50,000
Under Income Tax Bill, 2025
Income: Rs 10,00,000
Standard Deduction: Rs 75,000
Taxable income: Rs 9,25,000