Let’s be honest: being a salaried employee in India feels like running on a treadmill that keeps speeding up. Inflation bites, EMIs pile up, and yet your take-home pay barely moves. Now, with Budget 2026 just around the corner, there’s one demand echoing across offices, WhatsApp groups, and Twitter threads: hike the standard deduction. Currently frozen at ₹50,000 under the new income tax regime, this deduction hasn’t budged since its introduction—even as living costs have soared. For millions of middle-class taxpayers who’ve opted for the simpler, lower-rate new regime, this omission isn’t just unfair—it’s financially suffocating. And if Finance Minister Nirmala Sitharaman doesn’t act, the very people driving India’s consumption economy could be left behind.
Table of Contents
- What Is the Standard Deduction—and Why Does It Matter?
- The Flaw in the New Regime: A ₹50,000 Ceiling in a ₹10 Lakh World
- Why a Standard Deduction Hike Is Non-Negotiable in 2026
- Old vs. New Regime: Who Really Benefits?
- What Tax Experts and Economists Are Saying
- Realistic Budget 2026 Scenarios: What Could Happen?
- Conclusion: A Small Change with Massive Impact
- Sources
What Is the Standard Deduction—and Why Does It Matter?
The standard deduction is a fixed amount that salaried individuals can subtract from their gross salary before calculating taxable income. Introduced to simplify tax filing and acknowledge basic work-related expenses (like transport or office attire), it’s a lifeline for those without complex investments or deductions. Under the old tax regime, it’s ₹50,000. Crucially, when the new income tax regime was made default in 2023, the government included this deduction—but never increased it, despite rising inflation and wage growth.
The Flaw in the New Regime: A ₹50,000 Ceiling in a ₹10 Lakh World
Here’s the problem: the new regime offers lower tax rates but strips away most deductions—except the standard deduction. So while someone earning ₹12 lakh might pay less tax overall, they get no benefit from HRA, 80C, or health insurance deductions. That makes the ₹50,000 standard deduction their only shield. But with average urban salaries now crossing ₹8–10 lakh, this flat amount covers less than 5% of income—down from nearly 10% a decade ago. In real terms, the value of the deduction has eroded by over 30% due to inflation since 2018 .
Why a Standard Deduction Hike Is Non-Negotiable in 2026
Three compelling reasons make this a fiscal imperative:
- Middle-Class Relief: Over 70% of individual taxpayers are salaried employees. Most fall in the ₹5–15 lakh bracket—the engine of domestic consumption. Reducing their tax burden boosts spending power instantly.
- Equity Between Regimes: Without a higher deduction, the new regime remains unattractive to many mid-income earners who still benefit more from the old system—defeating the purpose of simplification.
- Inflation Adjustment: A hike to ₹75,000 would merely restore the deduction’s real value to 2018 levels. Anything less is a stealth tax increase.
Old vs. New Regime: Who Really Benefits?
Let’s compare two scenarios for a taxpayer earning ₹10 lakh:
- Old Regime: After ₹1.5L (80C) + ₹50K (standard) + ₹50K (HRA approx.), taxable income = ₹7.5L → Tax ≈ ₹52,500
- New Regime (current): Only ₹50K deduction → Taxable income = ₹9.5L → Tax ≈ ₹57,000
Result? The new regime costs more unless you have minimal deductions. But if the standard deduction hike pushes it to ₹75,000, the new regime tax drops to ~₹52,000—making it truly competitive.
What Tax Experts and Economists Are Saying
Leading voices are unanimous. The Confederation of All India Traders (CAIT) has formally urged a ₹75,000 limit. Tax analyst Monika Halan notes, “The standard deduction is the last vestige of fairness for salaried workers in the new regime.” Even the Economic Survey 2025 hinted at “rationalizing personal income tax structures to support consumption-led growth”—a clear nod to middle-class relief. Meanwhile, global peers like the U.S. automatically adjust standard deductions for inflation annually—a practice India sorely needs to adopt.
Realistic Budget 2026 Scenarios: What Could Happen?
While the government faces fiscal constraints, a modest hike is fiscally manageable:
- Best Case: Standard deduction raised to ₹75,000; new regime made more attractive without revenue loss (offset by broader compliance).
- Likely Case: Deduction increased to ₹60,000–₹65,000 as a political sweetener ahead of state elections.
- Worst Case: No change—forcing more taxpayers to stick with the old regime, undermining the government’s simplification goal.
Given FM Sitharaman’s focus on “ease of living,” a hike seems not just possible—but probable.
Conclusion: A Small Change with Massive Impact
A standard deduction hike in Budget 2026 isn’t about handouts—it’s about fairness, simplicity, and economic pragmatism. For a salaried class already stretched thin, even a ₹25,000 increase could mean thousands saved annually, fueling everything from children’s education to small business investments. As India aims to become a $5 trillion economy, empowering its core workforce isn’t optional—it’s essential. Don’t miss our detailed [INTERNAL_LINK:budget-2026-tax-planning-guide] for actionable strategies once the budget drops.