Union Budget 2022-23 – Many Won’t Have to Pay Tax as Govt Mulls Raising Standard Deduction Limit by Up to 35%
Last Updated : Jan. 28, 2022, 4:02 p.m.
The Union Budget 2022-23 might spell good news for the salaried as the government is considering hiking the standard deduction limit by 30-35%. Such a move, if implemented, will ensure the much-needed savings for the salaried class battling against inflation on all fronts – fuel, food and other essentials. The tax liability will reduce and could become ZERO in some cases. Industry bodies such as CII, FICCI and others have pitched for raising the limit to get the economy moving further. More savings often lead to more spending and raise the Gross Domestic Product (GDP), the barometer of the country’s economic growth. Let’s calculate and check how much savings one would have if the government does raise the limit in the budget.
How Much Will You Save with 30-35% Standard Deduction Hike if Announced in Union Budget 2022-23?
Savings will depend on your salary, tax-saving investments you may have made, etc. We’ll calculate for three salary brackets – INR 6 lakh, INR 8 lakh and INR 10 lakh, with tax-saving investments worth INR 40,000, INR 70,000 and INR 1,00,000, respectively. Let’s assume the government hikes the standard deduction limit by 30%. In that case, the standard deduction amount will rise from INR 50,000 to INR 65,000. It will help reduce your tax.
Let’s Calculate for Someone with an Annual Income of INR 6 Lakh
People with an annual income of INR 6 lakh have a great chance of having ZERO tax liability. Let’s check how.
| Income & Tax Aspects | Tax Calculation (In INR) |
|---|---|
| Gross Annual Income | 6,00,000 |
| Standard Deduction | 65,000 |
| Tax-saving Investments | 40,000 |
| Taxable Income Post Tax Deductions | 4,95,000 (6,00,000-65,000-40,000) |
| Tax Liability | NIL as the Taxable Income Falls below INR 5 Lakh |
How Much Savings Will You Have if Your Annual Income is INR 8 Lakh?
Let’s check below the savings you’re likely to have on your INR 8 lakh annual income with a 30% standard deduction hike.
| Income & Tax Aspects | Tax Calculation as per Budget Expectations (In INR) | Tax Calculations as per the Current Income Tax Norms (In INR) |
|---|---|---|
| Gross Annual Income | 8,00,000 | 8,00,000 |
| Standard Deduction | 65,000 | 50,000 |
| Tax-saving Investments | 70,000 | 70,000 |
| Taxable Income Post Tax Deductions | 6,65,000 (8,00,000-65,000-70,000) | 6,80,000 (8,00,000-50,000-70,000) |
| Tax Calculation | Up to INR 2.5 lakh - NIL From INR 2.5 - 5 Lakh - 5% of 2,50,000 (5,00,000-2,50,000) = 12,500 From 5 to 6.65 Lakh - 20% of 1,65,000 (6,65,000-5,00,000) = 33,000 Annual Tax without Surcharge = 45,500 Annual Tax after 4% Surcharge = 47,320 | Up to INR 2.5 lakh - NIL From INR 2.5 - 5 Lakh - 5% of 2,50,000 (5,00,000-2,50,000) = 12,500 From 5 to 6.80 Lakh - 20% of 1,80,000 (6,80,000-5,00,000) = 36,000 Annual Tax without Surcharge = 48,500 Annual Tax after 4% Surcharge = 50,440 |
Savings for an Individual with an Annual Income of INR 10 Lakh
Taxes for the concerned individual will reduce the way shown in the table below. Take a look.
| Income & Tax Aspects | Tax Calculation as per Budget Expectations (In INR) | Tax Calculations as per the Current Income Tax Norms (In INR) |
|---|---|---|
| Gross Annual Income | 10,00,000 | 10,00,000 |
| Standard Deduction | 65,000 | 50,000 |
| Tax-saving Investments | 1,00,000 | 1,00,000 |
| Taxable Income Post Tax Deductions | 8,35,000 (10,00,000-65,000-1,00,000) | 8,50,000 (10,00,000-50,000-1,00,000) |
| Tax Calculation | Up to INR 2.5 lakh - NIL From INR 2.5 - 5 Lakh - 5% of 2,50,000 (5,00,000-2,50,000) = 12,500 From 5 to 8.35 Lakh - 20% of 3,35,000 (8,35,000-5,00,000) = 67,000 Annual Tax without Surcharge = 79,500 Annual Tax after 4% Surcharge = 82,640 | Up to INR 2.5 lakh - NIL From INR 2.5 - 5 Lakh - 5% of 2,50,000 (5,00,000-2,50,000) = 12,500 From 5 to 8.50 Lakh - 20% of 3,50,000 (8,50,000-5,00,000) = 70,000 Annual Tax without Surcharge = 82,500 Annual Tax after 4% Surcharge = 85,800 |
Note – We’ve not considered the tax exemptions on provident fund deductions under Section 80C of the Income Tax Act. Applying those will further reduce the tax liability.
The hike in the standard deduction limit coupled with more investments in tax-savers could enable ZERO tax for even those earning more than INR 10 lakh .
What is Standard Deduction?
It’s a type of tax concession offered to salaried and pensioners irrespective of their investments. Companies reduce the standard deduction amount and other eligible tax-savers from your gross annual salary. As a result, the taxable income falls and so does your tax liability.
Standard deduction was reintroduced in the Union Budget 2018 after it was abolished in the Finance Act 2005. At that time, the standard deduction limit was INR 40,000, which got raised to INR 50,000 in Interim Budget 2019.