Standard deduction of ₹52500/- extended in new regime, but not for lower income

The standard deduction of Rs. 50000, which was previously solely accessible under the previous tax system, is now available to salaried individuals as well as retirees and family pensioners under the new tax regime. "I propose to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500, " announced Union Finance Minister Nirmala Sitharaman during her statement on the budget for 2023.

The 2018 Union Budget included the standard deduction. This deduction was made public in place of the transportation allowance and medical insurance. Up until FY 2017–18, a person may receive a transportation allowance exemption of Rs. 19,200 and a medical reimbursement exemption of Rs (provided medical bills are submitted to the employer). The standard deduction was put into place to make it easier for workers to comply with documentation. When claiming the standard deduction, an individual taxpayer is not needed to give their employer any receipts. The standard deduction was increased from Rs 40,000 to Rs 50,000 in the interim budget for 2019.

The idea of the standard deduction is not new. Up until FY 2004-05, this deduction was allowed. For those making between Rs 75,000 and Rs 5 lakh at the time, the deduction amount was equal to Rs 30,000, or 40% of their income, whichever was lower. The standard deduction cap for people making more than Rs 5 lakh was fixed at Rs 20,000.