Deduction: Why Now?
The call to raise the standard deduction stems from a desire to make the new income tax regime more appealing to taxpayers. Currently, the new regime,
which simplifies tax calculations by removing most deductions and exemptions, is not seen as beneficial by everyone, especially those with existing investments. A higher standard deduction would effectively reduce taxable income, thus reducing the tax liability for a broader range of taxpayers. Tax experts believe that an increased standard deduction will boost the attractiveness of the new regime, possibly leading to higher compliance rates and a more streamlined tax collection process. The current standard deduction may not be sufficient to offset the loss of other deductions that were available under the old regime, making the new regime less appealing for certain income brackets.
Impact of the Hike
Increasing the standard deduction is expected to have several implications. Primarily, it would result in lower tax outgo for many individuals, increasing their disposable income. This, in turn, could stimulate consumer spending and boost economic growth. A simpler tax system with a higher standard deduction could also reduce the complexity and compliance burden on both taxpayers and the tax authorities. Furthermore, it might encourage a shift towards the new tax regime, which can eventually lead to fewer disputes and a more predictable tax environment. However, any such change must be carefully considered, ensuring it aligns with the government's fiscal targets and does not create unintended consequences, such as a significant revenue shortfall.
Expert Recommendations
Tax professionals and financial advisors are actively participating in pre-budget discussions, suggesting concrete figures for the increase in the standard deduction. These recommendations are based on detailed calculations and analyses of the current tax landscape, considering the rising cost of living and the impact of inflation on household budgets. These experts typically suggest an amount which would adequately compensate for the removal of existing deductions and provide relief to taxpayers. They emphasize the need for simplicity and fairness, seeking a tax regime that is easy to understand and universally applicable. The suggestions are also aimed at reducing the administrative burden and creating a more transparent tax system, making it user-friendly for all taxpayers.
Simpler ITR & Incentives
Along with the standard deduction increase, tax experts are proposing other modifications to enhance the tax system. One such suggestion is to simplify the Income Tax Return (ITR) forms. Simplifying the forms would reduce the complexity, making it easier for people to file their taxes accurately and on time. Additionally, experts recommend incentives tied to pollution control measures and environmental sustainability. This could include tax breaks or credits for investments in renewable energy, electric vehicles, or other environment-friendly initiatives. By incorporating these suggestions, the Budget 2026 can potentially address current economic challenges and promote economic growth in a sustainable and inclusive manner.
