In the 2024 Budget, the government has proposed enhancements to tax deductions for salaried individuals and those receiving family pensions. Effective from April 1, 2025, the standard deduction under Section 16 of the Income-tax Act will increase from ₹50,000 to ₹75,000 for taxpayers opting for the new tax regime. Additionally, for family pension income, the deduction under Section 57 will rise from ₹15,000 to ₹25,000. These changes aim to encourage taxpayers to shift to the new tax regime by offering greater tax relief. Furthermore, amendments also include exclusions for certain dividend incomes and adjustments to deduction rules. These modifications are designed to provide financial benefits to salaried individuals and pensioners, thereby enhancing their tax savings from the assessment year 2025-26 onwards.
Budget 2024: Increase in Standard Deduction and deduction from family pension for taxpayers in tax regime
The existing provision of clause (ia) of section 16 of the Act provides that a deduction of fifty thousand rupees or the amount of the salary, whichever is less, shall be made before computing the income under the head “Salaries”.
2. Further, the existing provision of clause (iia) of section 57 of the Act provides that in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less, shall be made before computing the income chargeable under the head “Income from other sources”.
3. With the aim of encouraging and incentivizing taxpayers (specially the salaried taxpayers) to shift to the new tax regime, it is proposed to insert a proviso after clause (ia) of section 16 to provide that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC of the Act, the provisions of this clause shall have effect as if for the words “fifty thousand rupees”, the words “seventy five thousand rupees” had been substituted.
4. It is also proposed to insert a proviso in clause (iia) of section 57 to provide that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC of the Act, the provisions of this clause shall have effect as if for the words “fifteen thousand rupees”, the words “twenty five thousand rupees” had been substituted.
5. These amendments will take effect from the 1st day of April, 2025, and will accordingly apply to assessment year 2025-26 and subsequent assessment years.
[Clauses 10 & 24]
Proposed Amendment of section 16 of Income Tax Act, 1961 vide Finance Bill, 2024
In section 16 of the Income-tax Act, in clause (ia), the following proviso shall be inserted with effect from the 1st day of April, 2025, namely:––
‘Provided that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC, the provisions of this clause shall have effect as if for the words “fifty thousand rupees”, the words “seventy-five thousand rupees” had been substituted;’.
Proposed Amendment of section 57 of Income Tax Act, 1961 vide Finance Bill, 2024
In section 57 of the Income-tax Act,––
(i) with effect from the 1st day of October, 2024, ––
(a) in clause (i), after the words “in the case of dividends,”, the words, brackets, letter and figures “other than that referred in sub-clause (f) of clause (22) of section 2” shall be inserted;
(b) after the proviso, the following proviso shall be inserted, namely:––
“Provided further that no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2.”;
(ii) in clause (iia), before the Explanation, the following proviso shall be inserted with effect from the 1st day of April, 2025, namely:––
‘Provided that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC, the provisions of this clause shall have effect as if for the words “fifteen thousand rupees”, the words “twenty-five thousand rupees” had been substituted;’.
Extract of Clause 10 of Finance Bill 2024
Clause 10 of the Bill seeks to amend section 16 of the Income-tax Act relating to deductions from salaries.
The provisions of clause (ia) of the said section provides that a deduction of fifty thousand rupees or the amount of the salary, whichever is less, shall be made before computing the income under the head “Salaries”.
It is proposed to insert a new proviso in the said clause to provide that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC, the provisions of clause (ia) of section 16 shall have effect as if for the words “fifty thousand rupees”, the words “seventy-five thousand rupees” had been substituted.
This amendment will take effect from 1st April, 2025, and will accordingly apply to assessment year 2025-2026 and subsequent years.
Extract of Clause 24 of Finance Bill 2024
Clause 24 of the Bill seeks to amend section 57 of the Income-tax Act relating to deductions.
Clause (i) of the section 57 provides that the income chargeable under the head “Income from other sources” in the case of dividends, or interest on securities, shall be computed after making the deductions, of any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee.
It is proposed to amend the said clause to exclude the dividend referred in sub-clause (f) of clause (22) of section 2 for the purposes of the said clause.
It is also proposed to insert a new proviso to the said section to provide that that no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2.
These amendments will take effect from 1st October, 2024.
Clause (iia) of the section 57 provides that in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent. of such income or fifteen thousand rupees, whichever is less, shall be made before computing the income chargeable under the head “Income from other sources”.
It is proposed to insert a new proviso in the said clause so as to provide that in a case where income-tax is computed under clause (ii) of sub-section (1A) of section 115BAC of the Act, the provisions of clause (iia) of section 57 shall have effect as if for the words “fifteen thousand rupees”, the words “twenty-five thousand rupees” had been substituted.
This amendment will take effect from 1st April, 2025, and will accordingly apply to assessment year 2025-2026 and subsequent years.
