New Delhi: With Finance Minister Nirmala Sitharaman set to present the Union Budget on February 1, the “middle-class wish list” has a clear topper: A hike in Standard Deduction. Sources indicate the government may increase the limit from the current ₹75,000 to ₹1,00,000 under the New Tax Regime to combat inflation.
But what does this extra ₹25,000 deduction actually mean for your wallet? We crunched the numbers using the official FY 2025-26 tax slabs.
The Math: ₹75,000 vs. ₹1,00,000
Currently, salaried employees get a flat deduction of ₹75,000. If this is raised to ₹1 Lakh, your taxable income drops by an additional ₹25,000. However, the savings depend entirely on your Marginal Tax Rate (the rate applied to the highest portion of your income).
| Tax Slab (New Regime) | Income Range | Extra Deduction | Tax Saved + 4% Cess |
| 15% Slab | ₹12L – ₹16L | ₹25,000 | ₹ 3,900 |
| 20% Slab | ₹16L – ₹20L | ₹25,000 | ₹ 5,200 |
| 25% Slab | ₹20L – ₹24L | ₹25,000 | ₹ 6,500 |
| 30% Slab | Above ₹24L | ₹25,000 | ₹ 7,800 |
Crucial Note: The current tax structure allows a rebate (Section 87A) for taxable income up to ₹12 Lakhs. This means gross salaries up to ₹12.75 Lakhs are effectively tax-free today. If the Standard Deduction hits ₹1 Lakh, this tax-free ceiling rises to ₹13.00 Lakhs.
Scenario Analysis: Impact on Your Salary
Let’s look at three common salary brackets to see the real impact.
Case 1: Gross Salary ₹10 Lakhs (No Impact)
- Current Tax (₹75k Ded): Taxable Income ₹9.25L.
- Tax Liability: ₹0 (Covered by Sec 87A Rebate).
- New Tax (₹1L Ded): Taxable Income ₹9.00L.
- Tax Liability: ₹0.
- Result: No Change. You already pay zero tax.
Case 2: Gross Salary ₹15 Lakhs
- Current Tax (₹75k Ded): Taxable Income ₹14.25L.
- Highest Slab Rate: 15%.
- New Tax (₹1L Ded): Taxable Income ₹14.00L.
- Calculation: 25,000 (extra deduction)×15%=₹3,750+4% Cess
- Result: You save ₹3,900.
Case 3: Gross Salary ₹20 Lakhs
- Current Tax (₹75k Ded): Taxable Income ₹19.25L.
- Highest Slab Rate: 20%.
- New Tax (₹1L Ded): Taxable Income ₹19.00L.
- Calculation: 25,000 (extra deduction)×20%=₹5,000+4% Cess
- Result: You save ₹5,200.
Case 4: Gross Salary ₹25 Lakhs (Highest Earners)
- Current Tax (₹75k Ded): Taxable Income ₹24.25L.
- Highest Slab Rate: 30%.
- Result: You save the maximum possible amount: ₹7,800.
Why This Matters
While ₹3,900 or ₹7,800 might seem small annually, this move is strategic for two reasons:
- Consumption Push: Putting even small amounts back into the pockets of millions of taxpayers boosts overall economic consumption.
- Inflation Adjustment: The hike acts as a buffer against rising living costs in metro cities, ensuring the “real value” of the deduction stays relevant.
FAQ Section
A1: Unlikely. The government is incentivizing the New Tax Regime (Section 115BAC). The Old Regime deduction is expected to remain at ₹50,000.
A2: You are already in the “Zero Tax” zone. Currently, anyone earning up to ₹12.75 Lakhs pays nil tax due to the rebate. If the deduction rises to ₹1 Lakh, you remain tax-free, but the zero-tax safety net extends to those earning up to ₹13 Lakhs.
A3: Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2026.
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