Budget 2024 expectations: ‘Standard deduction should be one percent of total salary’

Budget 2024 Expectations: Salaried individuals have not received any additional relief in the form of standard deduction, as it remains unchanged for all individuals, irrespective of their income level.

The upcoming Interim Budget 2024 to be presented in Parliament on February 1 is eagerly awaited by taxpayers who expect some relief in income tax. There are expectations of increase in standard deduction in the upcoming interim budget.

Also read: Expectations from Budget 2024 Income tax exemption

The last revision to the standard deduction occurred with the interim budget in 2019. However, the most recent Budget for 2023 also extended this benefit to the new tax regime. Currently, a standard deduction of Rs 50,000 is allowed.

Budget 2024 expectations for salaried employees

The standard deduction serves as a uniform tax relief for salary-earning individuals. It represents an amount subtracted from the gross annual salary, resulting in reduced tax liability. For example, if an individual’s annual salary is Rs 7,50,000, a deduction of Rs 50,000 is applied, and tax is calculated based on the remaining amount (Rs 7,00,000).

Experts believe that an amendment may be proposed for the application of standard deduction as a percentage of an individual’s salary income, thereby ensuring fair and equal benefits for all employed individuals.

Anand Rathi Advisors Limited (ARAL), investment advisors, has come out with a comprehensive and exclusive report that gives an overview of the impact of the tax on household consumption.

The report broadly contains detailed information highlighting the impact of taxation on consumption patterns in India and recommendations to reduce the tax burden on the middle class.

budget 2024 expectations income tax

Highlights of research findings –

1. Growing consumer population

• • Urbanization is expected to be highly spread in India with cities accounting for about 40% of the population.
  • The rising disposable income of the middle class in India is having a profound impact on consumption, leading to increased spending on consumer goods, electronics, travel and eating out and total consumption is expected to reach ~370 tonnes by 2030.

2. Favorable demographics with rising household savings

• There has been a significant increase in retail participation in the capital market, total demat is growing at 29% CAGR due to internet penetration, increased financial awareness among the youth to invest in profitable assets.
• The volume of equities traded in the secondary market also saw significant growth, reaching a record high of $923 billion in traded volume by fiscal year 2022;

3. Need to increase the standard deduction for salaried taxpayers

• An enhanced standard deduction would provide tax relief to middle- and lower-income individuals who may not have access to various tax-saving investments and deductions, thereby reducing the tax burden on these segments of the population.

Sameer Bahl, CEO – Investment Banking, Anand Rathi Advisors, said, “As we look at the current economic scenario in India, we strongly believe that the increase in the standard deduction will help in reducing the financial stress arising from the rising cost of living. is necessary. Steady inflation and other economic factors have significantly increased our daily expenses, making it challenging for many of us to make ends meet. By increasing the standard deduction, the government can provide much-needed relief to taxpayers.

Atul Thakkar, investment banking director, Anand Rathi Advisors, said, “The standard deduction has remained largely stable from FY 2004-05 to FY 2022-23, leading to minimal savings in taxable income for salaried individuals. Increase in standard deduction will lead to increase in spending and consumption which will indirectly lead to increase in GST revenue for the government. In our humble opinion, we propose that the standard deduction should be considered as a percentage of total income from salary.