TheIncome Tax Act 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.
Who is Eligible to Claim a Standard Deduction?
The standard salary deduction can be claimed by individuals receiving salary and pension, excluding business owners i.e. any individuals having income under the head salary will be eligible to claim a standard deduction up to Rs 50,000.
Purpose of Standard Deduction
The introduction of standard deduction aims to achieve the following:
- Simplify tax filing by reducing paperwork and enabling deductions regardless of actual expenses.
- Offer tax relief specifically to middle-class salaried individuals.
- Extend benefits to pensioners through the standard deduction.
Budget 2024 Update
Salaried taxpayers are eligible for the standard deduction of Rs. 50,000 under the old and new tax regime from FY 2023-24. There has been no update in Budget 2024.
Standard Deduction in New Tax regime
Budget 2020 introduced thenew tax regime. Under this new regime, the taxpayers have the option to pay concessional tax rates. However, major deductions and exemptions are not allowed under this new regime.
Budget 2023 was amended, allowing to claim a standard deduction of Rs 50,000 in the new regime as well. Thus now you will be able to claim the standard deduction of Rs 50,000 both under the new and old regime.
How is standard deduction calculated in the case of multiple employers in one year?
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 2023-24, the standard deduction remains the same as the previous year at Rs.50,000.
Standard Deduction – Union Budget 2018
Finance Minister Arun Jaitley introduced a standard deduction of Rs. 40,000 in Budget 2018, giving the salaried class something to rejoice about. It replaced the transport allowance of Rs. 19200 and medical reimbursem*nt 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 a deduction. This deduction can be claimed by all salaried employees irrespective of category and need of any investment.
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 (increased from Rs.40,000) 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:
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 |
Net Salary | 7,65,800 | 7,60,000 | 7,50,000 |
From the above, it is evident that the taxable salary has come down on account of the standard deduction.
Standard Deduction for Pensioners
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 ‘Income from Salaries’.
Therefore, the taxpayer can claim a standard deduction of Rs. 50,000 or the amount of pension, whichever is less.
Documents Required for Standard Deduction
No supporting documents are required to claim the standard deduction for salary income. However, for filing income tax returns, you will need to provide the following documents and complete the necessary forms:
- Bank statements for the relevant financial year.
- Income statements from interest or fixed deposits.
- TDS (Tax Deducted at Source) certificates.
- Investment documents.
- Form 26AS and Form AIS.
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