What is Standard Deduction for Salaried Employees in India (2023)
Standard deduction was introduced in 1974 to establish parity between self-employed and salaried professionals. Several tax benefits were already available for self-employed individuals that helped in bringing down their taxable income. Standard deduction for salaried employees was introduced in Union Budget of 2018. Salaried individuals can also enjoy many benefits and reduce their tax liability.
If you are a salaried individual, here are a few key information regarding standard deduction. Keep reading!
What is Standard Deduction?
A part of the income that is not subject to tax in order to reduce your taxable income is known as a standard deduction. It is deducted from the gross income and claimed as an exemption. The standard deduction amount is Rs. 50,000. All salaried employees can claim this deduction to reduce their taxable income.
Example:
Gross Salary – Rs. 15,00,000
Medical Allowance – NA
Transport Allowance – NA
Standard Deduction – Rs. 50,000
Net Salary – 14, 50, 000
Objectives of Standard Deduction on Salary
The key objectives behind incorporating standard deduction are as follows:
- Helping the middle-class salaried individuals to get tax relief
- Enabling pensioners to get tax benefits
- Simplifying the paperwork process and offering deductions no matter what the actual expenses are
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Standard Deduction Relaunch in Budget 2018
As mentioned earlier, the standard deduction was reintroduced in Budget 2018 by the Union Finance Minister. This decision was beneficial for both the employees and employers owing to the changes it came with. For employers, the change was lesser administrative efforts with regard to medical and transport bill processing. On the other hand, for salaried employees, a reduction of their taxable salary income was one of the key advantages.
There was a replacement of the medical reimbursement of Rs. 15,000, annually and a transport allowance of Rs. 19,200 by standard deduction in income tax. Note that the deduction is generally made from the gross salary. Salaried employees can claim this as a tax exemption.
Changes Mentioned in Interim Budget 2019 Regarding Standard Deduction
Among several benefits for salaried individuals mentioned in the interim budget 2019, an increase in standard deduction was the essential one. There was an increase of Rs. 50,000 from Rs. 40,000 in relation to the standard deduction. This move was highly advantageous for salaried employees.
Documents Required for Standard Deduction on Salaried Employees
No documents are required to claim a standard deduction on salary. From Assessment Year 2020-21, the standard deduction amount has been increased to Rs. 50, 000. A standard deduction of Rs. 50, 000 is allowed for all salaried employees. While filing Income Tax Return, you may need to submit the following documents:
- TDS Certificate
- Form 26AS, 1040
- Income Statement from FDs and interests
- Bank statement for that financial year
- Investment documents
What is the Standard Deduction Limit?
The standard deduction limit is Rs. 50, 000 or the net salary amount. Whichever is lower will be taken into consideration.
Example:
Gross Salary – Rs. 2, 80, 000
HRA – Rs. 50,000
Travel Allowance – Rs. 90,000
Other Allowances – Rs. 1,00,000
Net Salary – 40,000
Here, the standard deduction will be Rs.40,000 as it is less than Rs.50,000.
Standard Deduction Available for Pensioners
The Income Tax Department made it very clear that the amount received as a pension by a taxpayer from his/her former employer will be taxable. Due to this being a part of salary income, it is eligible for standard deduction u/s 16.
Such taxpayers could claim a standard deduction of Rs. 40,000 or the pension amount (whichever is lower) as per FY 2018-19. That said, from FY 2019-2020 onwards, the deduction amount further increased to Rs. 50,000.
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Who Can and Cannot Claim Standard Deduction?
Standard deduction of Rs. 50,000 can be claimed by all salaried employees and pensioners. This deduction can be claimed only once a year. If you have changed jobs from one employer to another, the standard deduction will be limited to Rs. 50,000.
Self-employed individuals cannot claim the standard deduction. Also, the following individuals are not eligible for claiming standard deduction:
- A taxpayer with dual status.
- A married person who is filing separately and his/her spouse gets the deduction benefit.
- A taxpayer filing return for less than a year.
Standard Deduction – Old vs New Tax Regime
The introduction of standard deduction made a positive impact among salaried employees with the reduction of taxable income. However, besides all the unprecedented changes 2020 came with, the rejection of exemptions and deductions in the new tax regime was a prominent one.
Salaried individuals cannot claim the standard deduction, entertainment allowance, or deductions of professional tax on their total income. Note that those opting for the new tax regime cannot avail of tax benefits under Section 80C either.
However, salaried employees also get the convenience to choose between the new and old tax systems while filing ITR. In this regard, an employee should remember to notify the employer regarding the same.
| Income Slab | Old Tax Regime | New Tax Regime |
| Up to 2.5 lakh | NA | NA |
| ₹ 2.5-5 lakh | 5% | 5% |
| ₹ 5-₹7.5 lakh | 20% | 20% |
| ₹ 7.5-₹10 lakh | 20% | 20% |
| ₹ 10-₹12.5 lakh | 30% | 20% |
| ₹ 12.5-₹15 lakh | 30% | 25% |
| Over ₹ 15 lakh | 30% | 30% |
Final Word
Hopefully, this guide has covered most of the information related to the standard deduction. Now that you have a better understanding of this, it will be easier to reduce your tax burden. With all such advantages extended by the Government of India, you will get better at tax planning as well.
FAQs
Ans: No, you do not have to submit any proof to claim the standard deduction. It is available for every salaried individual as well as pensioners. Even if you go ahead to calculate the standard deduction, you can see that the amount of Rs. 50,000 gets entered automatically.
Ans: Yes, you can definitely claim tax deductions under different sections of the IT Act, such as 80D, 80C, etc., along with standard deduction. After the standard deduction, you can further subtract the remaining deductions from your net income.
Ans: No, it is not possible to claim that amount as a standard deduction for FY2018. The limit was Rs. 40,000 before FY 2019-2020, and that is why you cannot claim Rs. 50,000 for that financial year.
Ans: No, that will not be allowed as travel allowance got replaced by standard deduction in FY 2018-19. The same thing applies to medical allowance as well. Now, salaried individuals can only claim the standard deduction on their taxable income.
Ans: Yes, in order to claim the standard deduction, every salaried employee needs to file income tax returns. Generally, at the time of computing employees’ tax payable, employers take the standard deduction amount into account. This automatically helps them in deducting the tax deducted at source (TDS).
Ans: No, you cannot claim transport allowance and medical allowance as well along with standard deduction. You can only claim a standard deduction of Rs. 50,000.
Yes, you can claim both standard deduction & income tax deduction.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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