Introduction
The Union Budget 2025 promised relief to millions of salaried taxpayers by enhancing the standard deduction from ₹50,000 to ₹75,000 under the new tax regime. For many middle-class earners, this meant lower taxable income and a slightly higher take-home pay without extra compliance. But when the Finance Act 2025 was passed, taxpayers and professionals noticed something unusual i.e. a drafting error that technically left the deduction at ₹50,000. This caused nationwide confusion until the government stepped in with a fix.
In this post, let’s break down:
- What the drafting error was,
- How it was corrected,
- What it means for your salary and taxes, and
- A free Income Tax Calculator to help you check your numbers instantly.
The Budget Promise: A Boost for Salaried Folks
Finance Minister Mrs. Nirmala Sitharaman’s 2025 Budget speech announced that the standard deduction under the new regime would rise to ₹75,000 from FY 2025-26 (AY 2026-27).
- Old standard deduction: ₹50,000
- New standard deduction (from Budget 2025): ₹75,000
This change could save taxpayers up to ₹17,500, depending on their slab, and made the new tax regime more attractive compared to the old regime, which still allows exemptions like HRA and 80C.
The Drafting Error: What Went Wrong?
When the Finance Act 2025 was drafted, the relevant provision of Section 16(ia) was not updated properly. In simple words:
👉 The law still showed ₹50,000 instead of ₹75,000 for the new regime.
For a while, this meant the Budget promise didn’t match the law on paper. Tax professionals raised alarms, and salaried taxpayers were left wondering if the benefit would actually apply. We at TaxRoutine also had highlighted the same in our Basic Income Tax Calculator for AY 2026-27.
To add to the concern, experts also flagged other inconsistencies:
- Section 87A rebate drafting issues.
- Restrictions on refunds for belated returns.
Also Read: Rebate u/s 87A – A Legal Fiasco
Government Fixes the Error
Acknowledging the problem, the government acted quickly:
- The original Income Tax Bill 2025 was withdrawn.
- A corrected version, Income Tax (No. 2) Bill 2025, was tabled on 11 August 2025.
- Finally, the Taxation Laws (Amendment) Bill 2025 formally restored the ₹75,000 deduction and corrected other anomalies.
✅ Good news: From FY 2025-26 (AY 2026-27), salaried taxpayers under the new regime can confidently claim the ₹75,000 deduction.
How Does This Impact You?
If you’re a salaried individual choosing the new tax regime:
- You now get ₹75,000 deduction instead of ₹50,000.
- This lowers your taxable salary directly.
- Salaried taxpayers earning up to ₹12.75 lakh benefit the most.
For those in the old regime:
- Standard deduction remains ₹50,000.
- But you can still claim other exemptions (HRA, 80C, etc.).
Calculate Your Tax Instantly (Free Tool)
To make life simpler, we’ve built an easy Excel Income Tax Calculator updated with the latest rules.
👉 Download the Tax Calculator here
How to use it:
- Open the Excel file.
- Click on “Enable Editing”
- Enter your salary and other income details in the relevant fields marked in blue.
- Select your regime (old/new).
- See your tax payable instantly, with the correct ₹75,000 deduction factored in.
Key Takeaways
- Drafting errors in Finance Act 2025 temporarily created uncertainty.
- Parliament has fixed the law and allowed the enhanced deduction of ₹75,000 under the new regime.
- Always cross-check amendments on incometaxindia.gov.in before filing.
- Use tools like our calculator for quick checks, but consult a professional for personalized advice.
Conclusion
The Finance Act 2025 drafting error was a rare hiccup, but it serves as a reminder that tax laws evolve constantly. With the corrections in place, you can now enjoy the higher standard deduction and optimize your tax planning.
💡 Stay updated with TaxRoutine.com for practical tools, timely updates, and simplified explanations of complex tax changes.
