Income Tax - Standard Deduction

Income Tax – Standard Deduction

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.

1. 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.

2. 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: Table below shows how it works for Mr A who has a taxable income of Rs. 6 lakh for a particular FY.

Particulars	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

3. Applicable to Taxpayers Receiving Pension?

In a recent clarification issued by the income tax department, if a taxpayer has received a pension from the former employer, it is taxable under the head ‘Salaries’. Therefore, the taxpayer can claim a standard deduction of Rs. 50,000* or the amount of pension, whichever is less.

4. How to claim standard deduction?

Typically, your employer automatically applies this deduction when calculating your tax for purposes of TDS (tax deducted from source).

5. Can it be claimed along with other deductions?

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.