The Income Tax Act is not only provides provisions for imposing taxes on the income of citizens but also offers number of ways through which one can claim deductions and rebates. The deductions are allowed based on the way the taxpayers spend their income.
One such deduction offered to salaried individuals is the standard deduction. You must know that salaried individuals and pensioners can claim a certain amount under standard deduction by default without any investment or spending of money by the taxpayers. The provision was taken down for a number of years and was re-introduced during the Budget announcement in 2018.
Here is everything you should know about the standard deduction for salaried individuals.
The introduction of standard deduction aims to achieve the following:
Salaried taxpayers are now eligible for the standard deduction of Rs. 50,000 under new tax regime from FY 2023-24.
The Finance Minister Jaitley introduced Standard Deduction of Rs. 40,000 in Budget 2018, giving the salaried class something to rejoice about. It replaced the transport allowance Rs. 19200 and medical reimbursement of Rs. 15,000 per annum.
Interestingly, the provision of Standard Deduction was earlier available. However, it was abolished in the Finance Act 2005.
The standard deduction is usually deducted from the gross salary and claimed as an exemption. This deduction can be claimed by all salaried employees irrespective of category and need of any investment.
The Interim Budget presented on 1 February 2019 included numerous tax benefits for the salaried and the middle class. Among them, an additional amount of Rs. 10,000 (increased from Rs.40,000) to the Standard Deduction is a noteworthy move.
With the Standard Deduction being Rs 50,000 now (no change was made in Budget 2020 and 2021), it will help taxpayers immensely to reduce their tax outgo Let us understand this with a small example:
|Particulars||Until AY 2018-19||From AY 2019-20||From AY 2020-21|
|Gross Salary (in Rs.)||8,00,000||8,00,000||8,00,000|
|(-) Transport Allowance||19,200||Not Applicable||Not Applicable|
|(-) Medical Allowance||15,000||Not Applicable||Not Applicable|
|(-) Standard Deduction||Not Applicable||40,000||50,000|
From the above, it is evident that the taxable salary has come down on account of the standard deduction.
In a recent clarification issued by the income tax department, if a taxpayer has received a pension from the former employer, it is taxable under the head ‘Salaries’.
Therefore, the taxpayer can claim a standard deduction of Rs. 40,000* or the amount of pension, whichever is less.
*Increased to Rs 50,000 since FY 2019-2020 (AY 2020-21) through the Interim Budget 2019.
All said and done, though the impact of this amendment for the salaried may appear to be minimal, employers, with this move, would stand to gain in terms of being spared of a whole lot of administrative efforts in processing medical bills of its employees. Perhaps, that was the intention of the legislature.
Budget 2020 introduced new tax regime. Under this new regime, the taxpayers have an option to pay concessional tax rates, however major deductions and exemptions are not allowed under this new regime.
Standard deduction allowed from salary income is also not allowed if the taxpayer for filing of return in the new tax regime.
|Particulars||Old Tax regime (FY 2021-22)||New tax regime (FY 2021-22)|
The standard deduction is available as a flat deduction from the total salary earned by the employee in a particular financial year. It does not depend on the number of jobs changed by the employee. Hence one flat deduction is available for the cumulative salary earned from all the employers. For FY 2020-21, standard deduction remains same as the previous year at Rs.50,000.
No supporting documents are required to claim the standard deduction for salary income. However, for general income tax return filing, you will need to provide the following documents and complete the necessary forms:
The standard salary deduction can be claimed by individuals receiving salary and pension, excluding business owners. However, there are certain cases where eligibility for standard salary deduction is not applicable, including:
ClearTax e-filing software automatically considers the deduction amount of 50,000 while e-filing, if you are a salaried person.
No, you can claim deduction of 50,000 from previous year 2019-2020 only. Before that the limit was of 40,000.
No, you can claim only standard deduction of 50,000 and not the transport and medical allowance.