Income Tax: In this year’s budget,the government has not only increased the limit of tax-free income to Rs 12 lakh per annum in the new tax regime,but also announced to increase the standard deduction for the salaried class from Rs 50 thousand to Rs 75 thousand. Including this,it has been repeatedly said that the annual income of up to Rs 12.75 lakh of the salaried class will be tax-free.
But now some experts have raised questions in this matter citing the Finance Act,2025. Experts have said that there are some things in the terminology of the Finance Act 2025,due to which even after adopting the new tax regime,the amount of standard deduction will be 50 thousand and not 75 thousand in the financial year 2025-26. Let us know why they have said so? And what can happen next in this matter.
What is the structure of tax free income in the new tax regime?
The government had given a big relief to salaried taxpayers under the new tax regime in Budget 2025. It was told that there will be no tax on annual income up to Rs 12.75 lakh. Its calculation was done in this way:
- The total salary was considered to be Rs 12.75 lakh.
- Under the new tax regime,the standard deduction was to be Rs 75 thousand.
- After deduction,taxable income would be Rs 12 lakh.
- Income tax on Rs 12 lakh would be Rs 60 thousand.
- Then under section 87A,a rebate of Rs 60,000 would be available and the tax would become zero.
- But now questions are being raised that this calculation is not completely correct for the financial year 2025-26.
Where did the Finance Act 2025 go wrong?
According to experts,a careful look reveals that there is a technical error in the standard deduction arrangement made in the Finance Act 2025. Actually,the provision to increase the standard deduction to Rs 75,000 was added in section 16(ia). But it only mentions section 115BAC(1A)(ii),which is applicable for the financial year 2024-25. Whereas the new clause 115BAC(1A)(iii) added for 2025-26 does not mention this increased deduction. This means that for the new financial year 2025-26,only the standard deduction of Rs 50,000 will still be valid,not Rs 75,000.
How will it affect tax free income?
If the deduction of Rs 75,000 is not available and only the standard deduction of Rs 50,000 is applicable,then the limit of tax free income will also decrease. Now the calculation will be made like this:
- Total income Rs 12.50 lakh.
- Standard deduction of Rs 50 thousand will be available.
- Taxable income will be saved by Rs 12 lakh.
- Tax on Rs 12 lakh amounts to Rs 60 thousand.
- Under section 87A,a rebate of Rs 60,000 will be available and the net tax will be zero.
- That means,in the new tax regime,the tax free income limit will not be Rs 12.75 lakh,but Rs 12.50 lakh.
Is this a drafting error?
Experts believe that this is not a deliberate change,but a drafting error. A similar mistake is also seen in section 57(iia) related to family pension. If this is not corrected in time,taxpayers may face confusion.
What can the government do now?
According to experts,the government has three ways to rectify this mistake:
Issuing a chronology: Terminology can be corrected through a simple notification.
Bringing an Ordinance: In case the Parliament is not in session,temporary amendments can be made through an Ordinance by the President.
Passing an Amendment Bill: The mistake can be rectified permanently by duly passing an Amendment Bill in the next Parliament session.