When you receive your salary, a portion of it is automatically set aside as a tax‑free allowance. That allowance is called the standard deduction. In India, it has been a fixed amount that salaried employees can claim without the need to produce receipts or invoices.
Historically, the standard deduction has been ₹50,000 per year. It was introduced in the 2020‑21 financial year to simplify the tax filing process for workers across the country. The idea was simple: anyone earning a salary can subtract ₹50,000 from their gross income and pay tax on the remainder.
The government has now announced that the standard deduction is likely to be increased to ₹1 lakh for the upcoming financial year. This move would almost double the relief that employees currently receive.
The change comes at a time when the cost of living is on the rise. Many people in cities like Mumbai, Bengaluru, and Delhi see their take‑home pay squeezed by higher living expenses. A higher deduction would help keep a larger chunk of their earnings tax‑free.
From the government's perspective, the increase also aligns with broader fiscal policies aimed at boosting consumer spending. By reducing the tax burden on salaried workers, more money stays in the hands of households, which can translate into higher demand for goods and services.
Let’s look at a practical example. Suppose you earn ₹12 lakh in a year. Under the old rule, you could subtract ₹50,000, leaving ₹11.5 lakh to be taxed. With the new rule, you would subtract ₹1 lakh, so only ₹11 lakh would be taxed.
Tax for salaried individuals is calculated in slabs. For the 2023‑24 financial year, the slabs are:
For someone earning ₹8 lakh, the impact is even more pronounced. With ₹50,000 deduction, taxable income becomes ₹7.5 lakh. With ₹1 lakh deduction, it drops to ₹7 lakh. The tax saving in this case would be around ₹5,000. These figures illustrate that the benefit scales with income, but it is still significant for most salaried workers.
If the ₹1 lakh deduction becomes effective, you should update your payroll settings as soon as possible. Most companies automatically adjust the deduction in the next payroll cycle, but double‑checking can help avoid surprises.
Keep in mind that the deduction is applied before other tax‑relevant calculations, such as investment deductions under Section 80C or house rent allowances. So you can still claim those deductions on top of the ₹1 lakh allowance.
When filing your tax return, note the new deduction amount in the “Standard Deduction” field. If you use an online filing portal, it will usually auto‑populate the figure, but confirming it saves you from a minor miscalculation.
For those who use tax consultants or professional filing services, share the latest government notification. It will help them update their software and provide you with the most accurate tax computation.
Yes, it is intended for everyone who receives a salary as part of their employment. Self‑employed individuals, freelancers, or those who earn income through other sources would not be eligible for this specific deduction.
The deduction is taken out of your gross salary before any tax calculation. It reduces the income that is subject to the slab rates.
Absolutely. You can still claim deductions under sections like 80C, 80D, or 80TTA. The standard deduction is separate and can be combined with any other qualifying deductions.
No. The deduction is purely for tax purposes. Your PF contributions remain the same, and they continue to qualify for tax relief under the applicable sections.
The Income Tax Department will publish a notification. You can also check the official portal or consult your employer’s HR or payroll department for confirmation.
A raise in the standard deduction to ₹1 lakh could bring a welcome relief to millions of salaried workers across India. It simplifies tax calculations, reduces the tax bill for many, and keeps more money in the pockets of households. Keep an eye on the official announcement and make sure your payroll and filing details reflect the change to benefit fully from the new allowance.
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