The standard deduction for salaried taxpayers after being abolished in financial year (FY) 2005-06 was reintroduced from FY2018-19 onwards at Rs 40,000, in lieu of removal of tax exemption for transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000. The deduction limit was later enhanced to Rs 50,000 from FY2019-20.

The amount of the deduction is significantly low given the periodic cost of inflation over the years and the living expenditure of salaried individuals in current times. The household expenditure has been further adversely affected since the onset of the Covid-19 pandemic on account of increased medical cost and work from home expenses like cost of furniture, electricity, Internet, etc. Thus, there is a need to consider increasing the current standard deduction limit of Rs 50,000 to at least Rs 75,000. This will provide some financial cushion to individuals to sail through these unprecedented times.

Further, many countries like the US, UK, Canada, Ireland etc. have introduced certain tax breaks on Covid-19 related medical expenditure (like medical supplies, testing kits etc.) and work from home expenditure, including home office set-up. However, no such deduction/exemption has been introduced in India yet. Hence, enhancing the limit for standard deduction would allow some financial flexibility to the individuals for incurring the aforesaid expenditure.

Further, the benefit of standard deduction could also be made available to taxpayers opting for the concessional optional regime under section 115BAC of the Income-tax Act, 1961 as well. Standard deduction is a deduction allowed from gross salary income for salaried individuals and pensioners. This deduction reduces the taxable salary income of the individual and thereby reduces his/her tax liability also.