What is Standard Deduction? How does it benefit Salaried Individuals & Pensioners?
Budget 2018 introduced the provision of standard deduction for both salaried employees and pensioners. It refers to a flat deduction of Rs. 50,000 (previously Rs. 40,000 for FY 2018-19) on taxable income, providing tax relief to select group of individuals. Before Budget 2018, salaried individuals could claim reimbursement for travel expenses up to Rs 19,200 and medical expenses up to Rs 15,000. However, Budget 2018 replaced these claims amounting to Rs 34,200 with a standard deduction of Rs 40,000 per annum, which was subsequently increased to Rs. 50,000 in Interim Budget 2019. Read this article to understand more about standard deduction, including the process to claim it.
Table of Contents :
Why Standard Deduction?
Standard Deduction 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. Thus, standard deduction was introduced to increase the tax benefit for salaried individuals from earlier Rs. 34,200 (travel and medical reimbursements) to Rs. 50,000. This benefit is available to all salaried individuals and pensioners irrespective of their annual income and no bill expenses have to be submitted for claiming this benefit.
Eligibility to Claim Standard Deduction
All salaried individuals can claim this deduction, including pensioners as pension received from previous employer is considered income under the Head “Salary” as per Income Tax Act. Self-employed individuals including self-employed professionals cannot
Maximum Limit for Standard Deduction
- Salaried individuals can claim standard deduction up to Rs 50,000 on their income.
- Pensioners can claim Rs. 50,000 or their total annual pension as standard deduction, whichever is lower.
How Standard Deduction Works?
Let us understand how standard deduction works in this section by calculating the tax outgo before and after standard deduction.
For example: Mr A has a taxable income of Rs. 6 lakh for a particular FY.
Before Standard Deduction
Total tax outgo for Mr. A before claiming standard deduction will be Rs. 32,500. Let’s see how,
Calculation as per the current income tax slab rates:
Tax on up to Rs. 2.5 lakh of his income = Nil
Tax on over Rs. 2.5 lakh to Rs. 5 lakh of his income at the rate of 5% = Rs. 12,500
Tax on the remaining Rs. 1 lakh at the rate of 20% = Rs. 20,000
After Standard Deduction
If Mr. A claims standard deduction, then his total taxable income gets reduced to Rs. 5.5 lakh, and hence the total tax outgo gets reduced to Rs. 22,500.
Calculation as per the current income tax slab rates:
Tax on first Rs. 2.5 lakh of his income = Nil
Tax on next Rs. 2.5 lakh of his income at the rate of 5% = Rs. 12,500
Tax on the remaining Rs. 50,000 at the rate of 20% = Rs. 10,000
Thus, the provision of standard deduction allowed Mr. A to save Rs. 10,000 on his total tax outgo.
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. This is unlike the procedure to claim the previously allowed medical and travel reimbursements, where all such bills were required.
How to claim standard deduction?
You can claim standard deduction while filing your income tax return. Please note that the last date for filing IT returns is generally 31st July of the relevant assessment year. Typically, your employer automatically applies this deduction when calculating your tax for purposes of TDS (tax deducted from source).
Can it be claimed along with other deductions?
Yes, you can claim various other deductions, such as those available under tax-saving investments available under Section 80C (PPF, ELSS Funds etc) to Section 80U and their sub-sections along with standard deduction.