Income Tax Update: Will the ₹75,000 Standard Deduction Be Available This Year?

Experts Raise Concerns Over Possible Drafting Error in Finance Act 2025

New Delhi, April 28 — In the Union Budget 2025, the government had announced a major relief for salaried taxpayers under the new tax regime, including an increase in the standard deduction from ₹50,000 to ₹75,000. This change, combined with the increase in tax-free income up to ₹12 lakh, was expected to make annual earnings up to ₹12.75 lakh tax-exempt.

However, recent analysis by tax experts suggests a possible technical error in the Finance Act 2025, which may impact the applicability of the ₹75,000 standard deduction for the financial year 2025–26.

Understanding the Tax-Free Income Structure Under the New Regime

Initially, the new tax structure was explained as follows:

• Gross Salary: ₹12.75 lakh

• Standard Deduction: ₹75,000

• Taxable Income Post-Deduction: ₹12 lakh

• Income Tax Payable: ₹60,000

• Rebate under Section 87A: ₹60,000 (making tax payable effectively zero)

However, discrepancies in the wording of the Finance Act 2025 have led to doubts about the standard deduction amount applicable in FY 2025-26.

Where the Finance Act 2025 May Have Gone Wrong

Experts point out that while Section 16(ia) of the Finance Act 2025 mentions the increased ₹75,000 deduction, it only links it to Section 115BAC(1A)(ii), which is relevant for FY 2024-25.

The newly introduced Section 115BAC(1A)(iii), applicable for FY 2025-26, does not reference the enhanced ₹75,000 deduction. As a result, unless corrected, the standard deduction could remain ₹50,000 for the upcoming financial year, not ₹75,000 as earlier indicated.

Impact on Tax-Free Income

If the standard deduction remains at ₹50,000, the calculation would change as follows:

• Gross Salary: ₹12.50 lakh

• Standard Deduction: ₹50,000

• Taxable Income: ₹12 lakh

• Income Tax Payable: ₹60,000

• Rebate under Section 87A: ₹60,000 (tax liability becomes zero)

Thus, the effective tax-free income would be ₹12.50 lakh instead of ₹12.75 lakh under the new tax regime.

Is It a Drafting Error?

Tax experts largely believe this to be a drafting oversight rather than an intentional policy shift. A similar inconsistency has also been spotted in Section 57(iia), concerning deductions for family pension income.

If not addressed, this technical error could lead to widespread confusion among taxpayers.

What Can the Government Do?

Experts suggest three possible routes for rectification:

Issuing a Clarification: A simple notification could resolve the ambiguity.

Ordinance Route: If Parliament is not in session, an ordinance can be issued to amend the Finance Act.

Passing an Amendment Bill: The government could introduce an Amendment Bill in the next session of Parliament to correct the legislation permanently.

Clarity from the government is awaited, and taxpayers are advised to stay tuned for further official announcements to avoid any miscalculations during their tax planning.