Budget 2024: Is Rs 75,000 Standard Deduction Sufficient For Tax-Paying Middle Class?

New Delhi: In India, the middle class comprises around 31% of the total population at present, according to various media reports. Reports also claim that the middle class accounts for a majority of the individual income tax collection of the government. Experts have often claimed that the middle class is paying more taxes than all corporates put together.

In fact, the government relies on the taxes earned from the middle class to fund its capex and welfare programmes. In such a scenario, questions are being raised as to whether an increase in the standard deduction and rejig of the tax slabs under the new regime were sufficient for the salaried middle class, whose relief from tax burden has been long due? Deductions were neither changed nor adjusted for inflation for years.

The Centre had, however, introduced a new tax regime with higher slabs in 2020-21 fiscal, but it had no provisions for new deductions. Even no significant changes were made to the old regime. Budget 2024-25 proposed to hike the standard deduction limit to Rs 75,000 from earlier Rs 50,000, exclusively under the new tax regime. Moreover, the tax-free income limit in the new regime remains the same, ie, Rs 3 lakh. Nothing much has been offered to the old regime tax payers. The Finance Minister, had however, claimed that more than two-thirds of the taxpayers had availed of the new Income Tax regime.

Here’s what the Budget 2024-25 ignored when it comes to the personal income taxes linked to the middle class:

1) No encouragement to savings, deductions under section 80C not added to new regime & its limit stays same in old regime: The Budget 2024 has not changed the deduction limit under Section 80C for the old regime. This deduction is not allowed in the new regime. According to this, an individual is allowed to avail deduction up to Rs 1.5 lakh in a financial year. This limit has not been changed since 2014. Deductions made under section 80C encourage savings. The Income-tax Act, 1961 has a specified list of investments and expenditures that are eligible for deduction under Section 80C. These are EPF, PPF, ELSS mutual funds scheme, principal repayment of home loan and children’s tuition fees

2) Basic exemption limit remains unchanged: The basic tax exemption limit, which was increased from Rs 2.5 lakh to Rs 3 lakh in 2023, remains unchanged. The limit is same for both the regimes. Experts had anticipated the basic exemption limit to be raised to Rs 5 lakh, but such expectations were doomed.

3) No change in deductions over bank interests: The current exemption limit as per section Section 80TTA of the Income Tax Act 1961 was not increased. The exemption limit of Rs 10,000 is widely considered to be insufficient. This provides a deduction on the interest earned on savings account with a bank, cooperative society, or post office, up to Rs 10,000.

4) No change in deduction for health insurance: The deduction under Section 80D for health insurance for people under the age of 60 was last increased from Rs 15,000 to Rs 25,000 in Budget 2015. Over the past nine years, there has been no further change in this limit. This year too, the Budget didn’t make any changes to its limit even as health insurance premiums have risen significantly during this period.

5) Housing loan deductions: The deduction against home loan interest has remained unchanged at Rs 2 lakh for several years under the old regime. In the new regime, this deduction is not applicable. This year too the limit remained unchanged even as property prices and the average home loan amount have increased. The principal component of the equated monthly instalments (EMIs) qualifies for deduction under section 80C, while the interest portion (in respect of a self-occupied property) gets a further deduction of up to Rs 2 lakh, under Section 24b.