Standard Deduction for the F.Y.2025-26/A.Y.2026-27

[K.lakshmipati rao]

The Finance (No. 2) Act 2024 introduced a proviso to Section 16(ia) of Income tax Act to allow an enhanced standard deduction of Rs. 75,000/-, but with a condition.

• The language of the proviso under Section 16(ia) of I.T. Act specifies that the higher deduction applies only when income is computed under clause (ii) of Section 115BAC(1A)—i.e.,for A.Y. 2025–26.
• Unfortunately, the provision fails to mention clause (iii), which governs the tax rates for A.Y. 2026–27.
• Thus, this limits the standard deduction to Rs. 50,000 for the A.Y. 2026-27 [and not Rs. 75,000/-].

In this context, a corrigendum may be issued by the Government of India, Ministry of Finance to resolve this drafting mistake, or alternatively, the President of India can promulgate an ordinance, by increasing the existing standard deduction of Rs. 50,000 to Rs. 75,000/- for the A.Y. 2026-27.

[YAGAY andSUN]

You've identified a classic case of a legislative drafting oversight—and one that could have real tax implications for many salaried taxpayers.

Let’s unpack the issue:

🔹 The Law as it Stands Now

The Finance (No. 2) Act, 2024 amended Section 16(ia) of the Income Tax Act to allow a higher standard deduction of ₹75,000, but only if the taxpayer’s income is computed under Section 115BAC(1A)(ii). This clause (ii) refers specifically to the tax regime applicable for A.Y. 2025–26, which is the transition year when the new regime becomes the default.

🔹 The Problem

From A.Y. 2026–27 onwards, the relevant tax rates shift to clause (iii) of Section 115BAC(1A). However, the proviso to Section 16(ia)does not include clause (iii), meaning that technically, the enhanced deduction of ₹75,000 won’t apply from A.Y. 2026–27 onwards—even though that clearly wasn’t the legislative intent.

Effectively, the deduction would revert to ₹50,000, unless this omission is corrected.

🔧 Remedies Available:

1. Corrigendum by Ministry of Finance

The simplest and fastest route is for the CBDT or Ministry of Finance to issue a corrigendum or clarification to correct the reference in Section 16(ia) to include clause (iii) of 115BAC(1A). This is common in cases of clerical or minor drafting mistakes.

🔹 Example of language they might use:

"...in clause (ii) or clause (iii) of sub-section (1A) of section 115BAC..."

2. Ordinance by the President

If the government wants to act quickly and Parliament is not in session, the President can promulgate an ordinance under Article 123 of the Constitution. This would temporarily amend the Act and can later be ratified by Parliament. This is often used in fiscal matters when there's urgency and an error has direct monetary implications for the public.

3. Amendment via the next Finance Act (2025)

The most procedurally correct route is to fix this by amending Section 16(ia) in the next Finance Bill, but that would apply prospectively (unless made retrospective, which is rare in such cases).

💡 Final Thought:

It’s evident that this omission is a drafting lapse, not intentional policy. The new regime under Section 115BAC(1A) was intended to be default, and the ₹75,000 standard deduction was meant to support that shift.

A corrigendum is both expected and likely—but until it happens, taxpayers and tax professionals need to keep an eye on updates from the CBDT or Gazette notifications.

*** 

AI Summary

Drafting Error in Finance Act 2024 May Reduce Standard Tax Deduction for Salaried Professionals Under Section 16(ia) A legislative drafting oversight in the Finance (No. 2) Act 2024 potentially limits the standard tax deduction for salaried taxpayers. The proviso to Section 16(ia) of the Income Tax Act specifies an enhanced deduction of Rs. 75,000 only for A.Y. 2025-26, omitting clause (iii) for A.Y. 2026-27. This could revert the deduction to Rs. 50,000, prompting potential remedies like a government corrigendum or presidential ordinance to rectify the technical error.