Standard Deduction for Salaried Individuals

Updated on:  

08 min read

The Income Tax Act is not just about imposing taxes on the income of citizens. There are a number of ways one can claim deductions and rebates
based on the way they spend their income and on the sources of 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. 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.

Read about the Union Budget 2020 highlights here.

Middle class tax payers & Budget 2019

Standard Deduction – Union Budget 2018

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. They are usually deducted from the gross salary and claimed as an exemption. The government has proposed requisite amendments to Section 17(2)(viii) of the Income-tax Act, 1961. As a result, the effective additional benefit on account of the standard deduction would be an additional income exemption of Rs 5800.

Standard Deduction – Interim Budget 2019

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 to the Standard Deduction is a noteworthy move. With the Standard Deduction being Rs 50,000 now, it will help taxpayers immensely to reduce their tax outgo Let us understand this with a small example:

ParticularsUntil AY 2018-19From AY 2019-20From AY 2020-21
Gross Salary (in Rs.)8,00,0008,00,0008,00,000
(-) Transport Allowance19,200Not ApplicableNot Applicable
(-) Medical Allowance15,000Not ApplicableNot Applicable
(-) Standard DeductionNot Applicable40,00050,000
Net Salary7,65,8007,60,0007,50,000

From the above, it is evident that the taxable salary has come down on account of the standard deduction.

Taxpayers Receiving Pension

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 for FY 2019-2020(AY 2020-21) through the Interim Budget 2019.

Our Take

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.

Frequently Asked Questions

How can I claim the standard deduction in ClearTax software?

ClearTax e-filing software automatically considers the deduction amount of 50,000 while e-filing, if you are a salaried person.

Can i claim deduction of 50,000 for previous returns also?

No, you can claim deduction of 50,000 from previous year 2019-2020 only. Before that the limit was of 40,000.

Can I claim transport allowance and medical allowance as well along with standard deduction?

No, you can claim only standard deduction of 50,000 and not the transport and medical allowance.

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