Standard Deduction in Income Tax (2023 Examples)
Standard Deduction in Income Tax means a flat rate deduction for individuals receiving a salary or pension income. The Income Tax Act provides for standard deductions from your salary to reduce your income tax burden. Employees can claim it without investment. Finance Minister Arun Jaitley revived it in the 2018 budget which is still in effect. It is a big relief for the white-collar class. This guide explains the standard deduction in income tax which are deductible from your personal salary and retirement income.
What does standard deduction mean?
The standard deduction is a fixed deduction of Rs. 50,000/- from taxable income under the salary. This tax benefit can be claimed regardless of the actual amount spent on:
- Transportation expenses
- Medical benefits
It is available to salaried employees and pensioners.
A standard deduction is essentially a deduction deductible from income tax regardless of the expenditure or investment made by an individual.
This type of standard income tax deduction does not require disclosure/investment proof/expense reporting.
What are the different types of Standard Deductions?
There are two types of standard deductions in India as explained below.
Standard rental income deduction @ 30%
Rental income is classified under the heading Income from House Property.
Those who earn rental income can first calculate their annual net worth by reducing the municipal tax and other taxes paid to the local authority.
Other deductions under Article 24 are also allowed from the net annual value. This is explained further below.
|Gross Annual Value (i.e. Actual Rent or Expected Rent, |
whichever is higher)
|(Less) Municipal and other taxes paid to the Local Authority||(xxx)|
| (=) Net Annual Value (NAV)||Xxx|
|(Less) Deductions under Section 24|
|1. Statutory Deduction @ 30% of NAV||(xxx)|
|2. Deduction for Interest on Loan||(xxx)|
|(=) Income chargeable under head House Property||XXX|
This standard deduction applies to maintenance and management costs to keep the property in good condition. It is not necessary to provide proof of actual costs.
If an individual receives rent from multiple properties, can claim this standard 30% deduction from all properties. The standard deduction is only allowed for rent from renting apartments/buildings and not for rent from renting vacant lots.
Standard Deduction from Salary
The standard salary deduction of Rs. 50,000 was introduced in Budget 2019.
This deduction is allowed regardless of the employee’s actual expenses.
This deduction was introduced in place of the travel allowance and medical reimbursement previously granted to employees, who were required to submit a claim as evidence to claim these benefits.
The transportation and medical expense deduction is abolished and replaced by standard deductions. This is a cumulative deduction, and if you receive salaries from two employers in the same year, your maximum allowable standard deduction remains the same ie. Rs. 50,000 (total).
A standard deduction can be claimed regardless of whether the salary is received from a large or small company.
Who is eligible for a standard deduction?
All salaried individuals, including pensioners, are eligible to claim the standard deduction. Pensions received from previous employers are considered income under the heading salary. Self-employed individuals, including self-employed professionals, cannot claim the standard deductions.
When standard deduction is deducted?
You can claim a standard deduction when you file your income tax return. Employers take into account the flat-rate deduction when calculating the amount of tax payable.
This tax payable helps employers to deduct their employee’s TDS. The due date for filing income tax returns is July 31 of the subsequent year.
However, this due date is subject to change and IT will keep you informed of any revised dates.
Why standard deduction is given?
The main purposes of implementing the standard deduction are:
- Reduce paperwork
- Allow income tax deduction regardless of actual expenses
- Pensioners benefit from income tax deductions
- It is deducted from your gross salary and can be claimed as a waiver separate from any further investment.
How is standard deduction calculated for the year 2022?
Let’s use an example to better understand the impact of the standard deduction:
|Particulars||FY 2018-19 |
|FY 2019-20 |
|From FY 2020-21|
|Basic Salary + Dearness Allowance||900000||900000||900000|
|Conveyance Allowance (non-taxable)||20200|
|Medical Reimbursement (non-taxable)||15000|
|Other Taxable Allowance||200000||235200||235200|
|Income Chargeable to Tax||600000||985200||975200|
|Total Income tax Saving||77040||2000|
How is the standard deduction calculated in the case of multiple employers?
Standard deductions are not based on the number of employers. The standard deduction is the total annual limit, not the employer number.
Suppose Ms. Ankit worked for two employers in 2021-22. In this case, you may question how much of the standard deduction Mr. Ankit can claim.
1,00,000 (Rs. 50,000 for each employer) or
The correct Answer is Option 2 i.e., Mr. Ankit can take benefit of a standard deduction up to Rs. 50,000/-
Does standard deduction come under 80C?
No, standard deductions are not part of Section 80C. Section 80C and the standard deduction both cater to different rules and regulations that serve different purposes.
Standard deductions are deductions for medical and travel expenses. The Section 80C deduction allows deductions for certain investments and expenses.
Frequently Asked Questions (FAQs)
Can seniors claim a standard deduction?
Senior citizens who are 60 years or above but less than 80 years are allowed a standard deduction of ₹50,000 on account of their pension income.
Is the standard deduction calculated on a monthly basis?
The standard deduction is not computed on a monthly basis. When filing the ITR for the assessment year, a flat deduction is allowed.
Can I claim the standard deduction if my income exceeds Rs 5,00,000?
Standard deductions apply regardless of income tax slab. It is payable on salary income. The amount of salary is irrelevant.
Do standard deductions applicable to Central or State Government employees?
Yes, standard deductions are available for central or state government employees.
Both employers and salaried employees benefit from this standard deduction. Employers would benefit from fewer administrative efforts in processing transportation and medical bills. Salaried employees would benefit from lower taxable salary income.
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