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.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.

Before Standard Deduction
After Standard Deduction
Taxable Income Rs. 600,000  Rs. 550,000
Tax on up to Rs. 2.5 lakh Nil Nil
Tax on over Rs. 2.5 lakh to Rs. 5 lakh of his income at the rate of 5% Rs. 12,500 Rs. 12,500
Tax on the remaining Rs. 1 lakh at the rate of 20% Rs. 20,000 Rs. 10,000
Total tax outgo Rs. 32,500 Rs. 22,500

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