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What is Standard Deduction?

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Divya Singhvi

Income from salary
Income Tax
standard deduction

The standard deduction was introduced for the salaried taxpayers under Section 16 of the Income Tax Act. It allows salaried individuals to claim a flat deduction from income towards expenses incurred in relation to his or her employment. There is no proof required in order to claim this deduction.

What is Standard Deduction?

It has been introduced to bring parity between salaried employees and self-employed individuals. While self-employed individuals can claim various business-related expenses as deductions that bring down their taxable income, no such benefit could be claimed by most salaried individuals. It is a flat deduction of INR 50,000/- from AY 2020-21 to your “Income taxable under the head salaries”.

Standard Deduction for Salaried Person

This benefit is available to all salaried individuals irrespective of their annual income and no bill expenses have to be submitted for claiming this benefit. It helped employees more in terms of reduction in their tax liability. These are generally deducted from the gross salary and claimed as an exemption. This tax benefit can be claimed irrespective of the actual amount spent on

Let us understand how this deduction works in this section by calculating the tax outgo before and after standard deduction. For example, Mr. Arjun has a taxable income of INR 7 lakh for FY 2019-20.

PARTICULARS Before (INR) After (INR)
Gross Salary 7,00,000 7,00,000
–  Transport Allowance 19,200 NA
– Medical Allowance 15,000 NA
– Standard Deduction NA 50,000
Net Taxable Income 6,65,800 6,50,000

Therefore, as per the above calculations it can be seen that taxable salary has been brought down on account of the standard deduction.

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Impact of standard deduction on Pensioners

As per a recent clarification issued by the Income Tax Department, if a taxpayer has received income from a pension from the former employer, it shall be taxable under the head “Salaries”. Therefore, taxpayers receiving a pension from their ex-employers are eligible to claim a standard deduction of INR 50,000 or the amount of pension, whichever is less. Further, the benefit of this deduction will be allowed to pensioners only if it is taxable as salary income. In case it is charged to tax as other source income then the benefit of the standard deduction will not be available.

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Limit of the standard deduction

The eligible amount for this deduction cannot exceed the salary amount. The maximum amount of deduction will be:

Example

Let us understand the calculation of Salary income by claiming standard deduction with a small example. Given below are salary details for FY 2019-20

Particulars Amount (INR)
Gross Salary  3,00,000
HRA exemption  80,000
LTA Exemption 1,10,000
Other exemption  1,30,000
Net Salary 20,000
Standard Deduction
Rs. 50,000 or
Amount of salary i.e. 20,000
(whichever is lower)
20,000

Treatment under new tax and old tax regime

Our Finance Minister, Nirmala Sitharaman in budget 2020 has introduced a new tax regime (FY 2020-21) under which income would be taxable at lower rates. To avail of this option, the taxpayer will have to forego major tax exemptions and benefits including standard deduction.

Particulars FY 2020-21 (Old Tax Regime) FY 2020-21 (New Tax Regime)
Income from Salary 4,50,000 4,50,000
Less: Standard Deduction 50,000
Taxable Salary 4,00,000 4,50,000

FAQ

Can standard deduction be claimed along with other deductions?

Yes, a taxpayer can claim various other deductions, such as those available under tax-saving investments available under Section 80C (PPF, ELSS Funds, etc) to Section 80U.

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

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

Is standard deduction available to senior citizens also ?

Yes, standard deduction is available to all salaried taxpayers & pensioners irrespective of their age.

Are Bills Required to Claim Standard Deduction?

No, you do not have to submit any medical or travel bills in order to claim standard deduction.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

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