Home / Budget / Budget Expectations /  Income tax: Standard deduction limit may be increased in Budget 2021

In a relief to salaried middle class taxpayers amid a global pandemic, the central government may hike the standard deduction limit in the upcoming Budget 2021, the experts said. Standard deduction is a fixed deduction that is allowed to specific income tax assessees, irrespective of expenses incurred or investments made. Introduced in the 2018-19 Budget, the standard deduction replaced the medical and transport allowance. At that time, a salaried individual or pensioner could claim standard deduction up to 40,000 from their income. It was further increased to 50,000 in the following Budget.

To boost consumption in a pandemic-battered economy, the hike in standard deduction will be a good idea, according to experts. The standard deduction for salaried employees should be increased to 1 lakh in India in Budget 2021, the Federation of Indian Chambers of Commerce & Industry (FICCI).

Work from home has become a new normal in last one year. Many companies around the world have adopted remote working facility to prevent the spread of the virus. Setting up an office at home is a costly affair. As employees incur higher work-related personal expenditure, higher electric cost during work from home, an increase in standard deduction limit should be considered by the central government, the industry body opined.

"In 2020, the government has taken a lot of measures to revive the economy, the taxpayers are now waiting eagerly for a pleasant surprise at the end of the year with this budget in the form of some substantial rebate. This ‘rabbit in the hat’ moment by the government for the taxpayers can be in the form of decreasing the rate of income tax or increasing the threshold and by increasing the standard deductions as allowed under the Income Tax Act," said Aditya Chopra, Managing Partner, Victoriam Legalis.

Confederation of Indian Industry (CII) also thinks that the limit of standard deduction should be substantially increased in the Union Budget 2021 in the view of the rising inflation.

On the relief on the income tax front, Kunal Varma, chief business office and co-founder, MoneyTap said, "With citizens’ incomes being drastically affected, tax relief would be a welcome move this year. An increase in the limit for tax deductions under section 80C would be good. Considering inflation in the recent past, the previous limits are no longer relevant. This will boost spending or ability to invest, which the economy needs right now."

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