With Union Budget 2026 set to be presented on February 1, salaried taxpayers are once again watching closely for relief on the income tax front. One key
expectation this year revolves around the standard deduction, a simple and widely used benefit that directly lowers taxable income for salaried individuals and pensioners. What Is the Current Standard Deduction? The standard deduction differs across tax regimes. Under the old income tax regime, it has remained unchanged at Rs 50,000 for several years. Under the new income tax regime, the government increased it to Rs 75,000 in 2024, as part of its broader push to make the new system more attractive. With the government actively encouraging taxpayers to shift to the new regime, any further relief—if announced—is expected to be focused there rather than in the old system. Why the Issue Matters in Budget 2026 Over the past few years, the government has repeatedly tweaked tax slabs and rates under the new regime. In the last Budget, income up to Rs 12 lakh was made tax-free, and for salaried taxpayers, this effectively rose to Rs 12.75 lakh after accounting for the Rs 75,000 standard deduction. Government data shows that 72% of taxpayers opted for the new regime in FY 2023-24, a share expected to rise further after last year’s tax relief. Against this backdrop, tax experts believe the standard deduction has become the most practical lever left for offering additional relief. Why Experts Want a Higher Standard Deduction The core argument is straightforward: the new tax regime does not allow most exemptions and deductions available under the old system. As a result, the standard deduction has become one of the very few tools to ease the tax burden for salaried individuals. Tax professionals argue that rising inflation and higher daily expenses have eroded disposable incomes, making the current Rs 75,000 deduction increasingly inadequate. Some experts also suggest linking the standard deduction to inflation, similar to how Dearness Allowance is periodically revised for government employees. This would help preserve purchasing power without complicating the tax structure. How Much Could It Be Raised? Opinions vary, but several tax experts believe the government could consider raising the standard deduction to Rs 1 lakh or even Rs 1.25 lakh under the new regime. Such a move, they argue, would provide meaningful relief to the middle class while keeping the system simple and compliance-free. Others suggest a more modest increase—around Rs 15,000 to Rs 25,000—to partially offset rising living costs and potential reductions in take-home pay due to upcoming labour code changes, which could increase provident fund contributions. The Labour Code Factor Another argument in favour of a hike relates to the implementation of new labour codes, which redefine “wages” and may result in higher statutory deductions. This could reduce net salaries for many employees, making an enhanced standard deduction a useful counterbalance. Why the Government May Hold Back Despite strong arguments, a hike is not guaranteed. Some experts point out that the government’s fiscal space may be limited, especially after last year’s major tax slab reforms and GST rate reductions. There is also a view that policymakers may want to first assess how many taxpayers migrate to the new regime under the revised FY 2025-26 slabs before offering further incentives. Additionally, since the standard deduction was already increased recently, another hike so soon could strain revenues at a time when non-corporate tax collections are showing signs of softening. The standard deduction has become a critical pillar of relief for salaried taxpayers under the new income tax regime. With limited scope for new exemptions or slab changes, enhancing this deduction remains the most straightforward way to offer relief without diluting the regime’s simplicity. Whether Budget 2026 delivers that relief will depend on fiscal calculations—but for now, a higher standard deduction remains firmly on taxpayers’ wishlists.
