Standard Deduction for Salaried Employees


Standard Deduction for Salaried Employees

Standard Deduction was introduced in the Budget 2018 for both salaried employees and pensioners. It refers to a deduction of Rs. 50,000 (which was Rs. 40,000 for FY 2018-19) on the taxable income of certain individuals. The step aims to provide tax relief to all the eligible people.

Prior to Budget 2018, salaried individuals were allowed to claim reimbursement for travel expenses up to Rs. 19,200 and medical expenses up to Rs. 15,000. However, Budget 2018 replaced these travel and medical claims amounting to a total of Rs 34,200 with a standard deduction of Rs 40,000 per annum. This amount was further increased to Rs. 50,000 in Interim Budget 2019

What is Standard Deduction?

Standard Deduction was introduced to bring some kind of uniformity on the taxation side between salaried employees and self-employed individuals. Self-employed individuals are eligible for claiming various business related expenses as deductions to bring down their taxable income. Earlier, there was no such facility available for most salaried individuals.

Thus, standard deduction was introduced to increase the tax benefit for salaried individuals from earlier Rs. 34,200 (travel and medical reimbursements) to Rs. 50,000. This benefit is available to all salaried individuals and pensioners irrespective of their annual income. Note that no bill expenses have to be submitted for claiming this benefit.   

Who can avail Standard Deduction?

Every salaried individual has the legal right to claim Standard Deduction. It includes all employees of the Central and State Government as well as the private employees. 

In addition to that, pensioners can also claim Standard Deduction. The reason for that is that the pension received from the previous employer is considered Income under the Head “Salary” as per the Income Tax Act which qualifies it for Standard Deduction.  

What is the maximum limit for Standard Deduction?

The maximum limit of Standard Deduction for the Financial Year 2020-21 is up to Rs 50,000. All salaried individuals as well as pensioners can claim it on their income. In fact. pensioners can claim Rs. 50,000 or their total annual pension as Standard Deduction, whichever is lesser.

What are examples of Standard Deductions?

Interim Budget from February 2019, had multiple tax benefits for the salaried and the middle class. Out of all the changes made, an additional amount of Rs. 10,000 to the Standard Deduction is an applaud worthy move. With the increase in amount to Rs. 50,000, the taxpayers will benefit immensely. That’s because their tax outgo will get reduced due to this. Let’s understand this with an example:

Particulars

Until AY 2018-19

From AY 2019-20

From AY 2020-21

Gross Salary (in Rs.)

8,00,000

8,00,000

8,00,000

(-) 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

7,65,800

7,60,000

7,50,000

 

As you can see, the taxable salary has come down here because of the standard deduction.

How to claim Standard Deduction?

The method to claim Standard Deduction is quite simple. You can claim the Standard Deduction amount while filing your Income Tax Return (ITR). The last date to file the ITR is generally 31st July of the relevant Assessment Year. 

In most cases, your employer will automatically apply this deduction when they calculate your tax for purposes of tax deducted from source (TDS).

Do you need bills to claim Standard Deduction?

While earlier medical and travel bills were required for reimbursement, with the Standard Deduction rule in place you don’t need to submit about submitting any medical/travel bills.  You can directly claim the Standard Deduction while filing your ITR. 

Is there any Standard Deduction for FY 2020 21?

During Financial Year 2018-19 the Standard Deduction was Rs 40,000, however for Financial Year 2019-20 it was increased to Rs 50,000. Fortunately, the same Standard Deduction amount is applicable for FY 2020-21 as well.

Can Standard Deduction be claimed along with other deductions?

Yes, you can claim Standard Deduction along with all the other deductions available under Section 80C for tax-saving purposes like PPF, ELSS Funds, FD, SSSC or life insurance. In addition to this, you can also claim deductions under Section 80D. Section 80E, Section 80G and even their sub-sections.

FAQs 

  • Is Standard Deduction applicable to all salaried employees?

Yes. Standard Deductions is applicable for all salaried employees including both private and government (central and state) employees.

  • What are the documents you need to claim Standard Deduction?

No documents or bills need to be submitted to claim Standard Deduction. It is flat Rs. 50,000 for every salaried employee which can be straightaway claimed

  • Can I claim transport allowance and medical allowance in addition to Standard Deduction?

No, you are not allowed to claim transport allowance and medical allowance in addition to Standard Deduction. 

Written by

Priyanshi Bhardwaj