Standard Deduction for Salaried Individuals

Standard Deduction for salaried Individuals
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Standard Deduction for salaried Individuals

  • It is a deduction allowed to salaried individuals.  It is mainly a flat amount that is subtracted from the salary income before the calculation of the taxable income of an Individual.
  • The deduction was reintroduced by Finance Minister Arun Jaitley in Union Budget 2018. The introduction of the standard deduction led to the removal of the existing annual transport allowance of Rs 19,200/-  and Rs 15,000/-.
  • The limit of standard deduction was raised from Rs. 40,000/- to Rs. 50,000/- in the Union Budget 2019. ( Salaried Individuals can claim a deduction of Rs. 50,000/- from Assessment Year 2020-21.)

Assessment year

Standard Deduction u/s 16(ia)

2019-20

Rs. 40,000/-

2020-21 onwards

Rs. 50,000/- Nil

OLD tax rates

NEW tax rates

NOTE: IF ONE OPTS TO PAY TAX AS PER NEW TAX REGIME (u/s. 115BAC – the lower tax rates) THEN STANDARD DEDUCTION WILL NOT BE ALLOWED.

What is the main benefit of standard deduction?

It is a straight deduction, the flat amount is deducted from the income that is chargeable to tax under the head salary. The biggest advantage of the standard deduction is its simplicity as there is no need for any disclosure or bills or proofs of investment etc.

How much can an Individual claim as a standard deduction?

If an Individual has derived income from salary then the maximum standard deduction that can be claimed is lower of Rs,50,000/- or amount of salary.

STANDARD DEDUCTION u/s 16(ia) 

  • Rs, 50,000/-
  • Salary earned

whichever is LESS.

Standard deduction is available to all assessees?

NO. It is available only to INDIVIDUAL assessees who derive income from salary during the previous year.

If an Individual earns salary only for part of the previous year will he be eligible for the deduction?

There are no conditions laid down for availing standard deduction. So, if an individual derives income even for one day in the previous year standard deduction can be claimed.

The standard deduction is a flat amount of deduction;  it is not Rs. 50,000/- per annum. So for cases where an individual has not been in employment for a full year, then also the individual will be eligible to claim the full deduction (no need for proportionate calculation of deduction).

Under which section of the Income-tax Act,1961 standard deduction is explained?

Section 16(ia) of Income Tax Act,1961 – Deductions from salaries

“The income chargeable under the head “Salaries” shall be computed after making the following deductions, namely:—

(ia) a deduction of fifty thousand rupees or the amount of the salary, whichever is less.”

 

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About CA Ankita Khetan 161 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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