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The standard deduction was reintroduced in the union budget 2018 after it was withdrawn by finance minister P. Chidambaram in the 2015 budget.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.

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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’.

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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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