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Standard Deduction in India 2019

IndianMoney.com Research Team | Posted On Wednesday, September 25,2019, 05:52 PM

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Standard Deduction in India 2019

 

 

What is the Standard Deduction?

The standard deduction is a provision which states that the employees are eligible to get a flat rebate on their net income. This deduction is meant to reduce the net taxable income. The standard deduction was introduced for the salaried taxpayers under Section 16 of the Income Tax Act in the year 1974. The provision was earlier available. However, in the year 2005 the then Finance Minister Mr P. Chidambaram withdrew it in the union budget 2005-06. He introduced a medical reimbursement and travel allowance that would be deducted from the net salary.  He also led to an equivalent increase in the basic exemption limit and section 80C deductions.

Standard deduction made a comeback in the 2018-19 budget when finance minister Mr Arun Jaitley announced a flat rebate of Rs. 40,000. As per the current law, the benefit of standard deduction can be availed by all classes of salaried employees (government, state and private employees) as well as pensioners who receive a pension from employers.

The best part is professionals and pensioners do not have to furnish documents or receipts to claim the benefit.

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Standard Deduction in India:

The standard deduction is a deduction stated as per the Income Tax Act, 1961. The standard deduction allows the employees to claim a flat rebate from their net income. The deduction must be claimed for expenses incurred concerning his or her employment. The employee does not need to present any investment proof or expense bill to claim the tax deduction. It is given to employees at a special rate.

See Also: How To Reduce Income Tax In India?

Standard Deduction for Salaried Individuals:

The standard deduction was reintroduced in the union budget 2018 after it was withdrawn by finance minister P. Chidambaram in the 2015 budget. A salaried professional can now claim a flat deduction of Rs. 40000 from their annual income. The deduction has replaced the existing medical allowance of Rs. 15000 per annum and transport allowance of Rs. 1600 per month with a yearly tax benefit. As a result of the added benefit, the standard deduction would amount to 5800 (40,000 – (15,000 + 19200)).

The salaried class have welcomed the standard deduction with much joy as it brings down the total taxable income. It will help to balance the tax rebates enjoyed by the individuals operating a business and the salaried individuals.

See Also: What are the steps involved in tax planning?

Standard Deduction - Budget 2019

After its revival by finance minister Arun Jaitley in the budget 2018, the salaried individuals get a tax rebate of Rs. 40,000 per annum. The government also proposed changes in Section 17 (2)(viii) of the income tax act, 1961 which resulted in an additional income exemption of Rs. 5800.

In the interim budget of 2019, Finance Minister Piyush Goyal proposed a hike in the standard deduction. He proposed a deduction limit of 50,000 from the current limit of 40,000. The move is a way to give tax relief to middle-class taxpayers and the salaried class. An increase in the limit would reduce the tax outgo of the salaried class. To understand how it works let’s look at the table below:

Particulars

Until 2018

from the year 2019

From the year 2020

Gross CTC

7,00,000

7,00,000

7,00,000

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

6,65,800

6,60,000

6,50,000

The above data clearly shows how standard deductions have reduced the net taxable income.

Taxpayers Receiving Pension:

In a recent statement issued by the income tax department, the taxpayers who receive a pension from their former can claim a standard deduction of Rs. 50,000 or the amount of pension whichever is less as it is taxable under the head ‘salaries’.

See Also: Tax planning mistakes to avoid

Explain how Standard Deduction Works? Step by step with example

Look at the table below to understand how tax deduction works:

Particulars

Present

Post-budget

Basic salary + dearness allowance

Rs. 3,10,533

Rs. 3,10,533

Conveyance allowance

Rs. 19200

-

Medical reimbursement

Rs. 15,000

-

Other taxable allowance

Rs. 1,89,467

Rs. 2,23,667

Gross salary

Rs. 5,00,000

Rs. 5,34,200

Standard deduction

-

Rs. 40,000

Income under the head salary

Rs. 5,00,000

Rs. 4,94,200

Income tax

Rs. 12500

Rs. 12,210

Less: rebate under section 87A

-

-

Total tax payable after rebate

Rs. 12500

Rs. 12,210

Surcharge at 10% or 15%

-

-

Total tax payable after surcharge

Rs. 12500

Rs. 12,210

Education cess

Rs. 375

Rs. 488

Total tax, surcharge and education tax

Rs. 12,875

Rs. 12,698

Tax saving

 

177

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