What is Standard Deduction in Income Tax?

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.

ITR for Salaried Individuals
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ITR for Salaried Individuals
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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.

ITR for Pensioners
CA Assisted Income Tax Return filing for individual senior citizens receiving pension income.
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CA Assisted Income Tax Return filing for individual senior citizens receiving pension income.
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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:

  • INR 50,000/- or
  • Salary amount whichever is lower.

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.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

  8. Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total

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