To claim any tax deduction, it is mandatory to have valid proof that shows the real investment or rate has been incurred. But what if we are saying there’s one tax deduction that you could claim with no investment proof? We are talking about standard deduction. It is a flat deduction available to all salaried individuals with no investment proof. In this blog, we will dive deeper to learn what a preferred deduction is, its eligibility, and the way it works.
What is Standard Deduction?
Standard deductions are typically deducted from gross salaries and claimed as an exemption without proof of costs. They are flat deductions of ₹50,000 from your taxable salary that falls under gross wages. Since its advent, the standard deduction has provided numerous tax advantages to salaried people.
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Who is Eligible to Claim a Standard Deduction?
The standard deduction may be claimed through people receiving income and pension, excluding business owners. The standard deduction is not applicable in the following cases:-
- Married people file one after the other if the partner itemized deductions.
- Taxpayers with dual status or non-resident alien fame at some stage in a specific economic year.
- Taxpayers submitting returns for a duration of less than a year.
The income Tax Return submitted for FY 2023-24 (AY 2024-25) has been started out. Remember, non-filing the ITR method notices and consequences. Avoid last-minute trouble by filing today and claiming maximum deductions.
Purpose of Standard Deduction
The purposes of introducing standard deduction are:
- To reduce paperwork and allow for deductions regardless of the real costs.
- To offer tax comfort to middle-class salaried individuals.
- To offer benefits to pensioners.
Standard Deduction in New Tax Regime
The standard deduction under the New Regime is given below:
| Particulars | FY 2022-23 (Old Tax Regime) | FY 2020-21 2022-23 (New Tax Regime) |
|---|---|---|
| Salary Income | Rs.3.5 lakh | Rs.3.5 lakh |
| Standard Deduction | 50,000 | – |
| Salary Taxable | Rs.3 lakh | Rs.3.5 lakh |
The Standard Deduction in the Old Tax Regime
Salaried individuals who’ve opted for the old tax regime can declare a standard deduction from their salary. They can claim a standard deduction of up to Rs 50,000 from their salary. Also, they could declare other deductions together with Section 80C, Section 80D, Section 80EE, Section 80G, and so on.
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Standard Deduction Limit on Salaried Employees in New vs Old Tax Regime?
The new tax regime is delivered in the budget of 2020, which permits concessional rates, but there are no exemptions or new deductions for salaried persons. The new regime has reduced the price of salary tax by as much as ₹15,00,000.
You have the option to choose among old or new regimes at the same time as submitting a return. Even pensioners can transfer among those alternatives.
| Income Slabs | Tax Rate (Old System) | Tax Rate (New System) Without Exemptions and Deductions |
|---|---|---|
| Up to ₹ 2.5 lakh | NIL | NIL |
| ₹ 2.5-5 lakh | 5% | 5% |
| ₹ 5-₹7.5 lakh | 20% | 10% |
| ₹ 7.5-₹10 lakh | 20% | 15% |
| ₹ 10-₹12.5 lakh | 30% | 20% |
| ₹ 12.Five-₹15 lakh | 30% | 25% |
| Above ₹ 15 lakh | 30% | 30% |
According to the new regime, it’s relevant if the taxpayer forgets deductions and exemptions below the following heads:-
- Standard deduction of ₹ 50,000.
- Deduction under phase 80C maximum up to ₹ 1,50,000.
- Deduction under section 24 is a maximum of as much as ₹ 2,00,000.
- Entertainment allowance and expert tax deduction under section 16(ii).
- Leave travel allowance
- House rent allowance
- Premium of medical insurance between ₹ 25,000 to ₹ 50,000.
- Interest in savings bills below section 80TTA up to ₹ 10,000.
- Interest on savings bills for senior citizens under section 80 TTB up to ₹ 50,000.
Standard Deduction – Union Budget 2018
Finance Minister Arun Jaitley delivered a standard deduction of Rs. 40,000 in Budget 2018. It replaced the delivery allowance of Rs. 19200 and medical reimbursement of Rs. 15,000 per annum.
Interestingly, the availability of Standard Deduction turned into advanced availability. However, it was abolished in the Finance Act 2005.
The preferred deduction is normally deducted from the gross salary and claimed as a deduction. This deduction may be claimed by all salaried employees regardless of category and need of any investment.
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Standard Deduction – Interim Budget 2019
The Interim Budget offered on 1 February 2019 blanketed numerous tax benefits for the salaried and the middle class. Among them, a further amount of Rs.10,000 (improved from Rs.40,000) to the Standard Deduction is noteworthy.
With the Standard Deduction being Rs 50,000 now, it will help taxpayers immensely to reduce their tax return. Let us look at the given example and understand it:
| 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 |
Required documents for standard deduction
However, you need to have the following documents for standard deduction
- Bank statements of the evaluation year
- Statements for interest income
- Tax Deducted at Source (TDS) certificates
- Investment-related documents
- Form 26AS and Form 1040
Conclusion
Salaried tax filers constitute the majority of the eighty million tax filers in India and need to cautiously overview and claim the exemptions and deductions available to them by right structuring of the remuneration, making eligible investments, and gratifying precise situations to optimize their tax deduction.
The alternative of whether or not to avail of a new tax regime by preceding certain exemptions/deductions also needs to be decided every financial year.
FAQ’s:-
1. Are standard deductions and rebates the same?
No. The standard deduction in Income Tax is offered under Section 16 and applies to salaried and pensioners. Rebate under Section 87A is available to all individual taxpayers, including self-employed, who have an annual taxable salary of less than Rs. 5 lakhs.
2. Are standard deductions of the Income Tax relevant to country and authorities employees?
Yes, the availability for standard deduction currently applies to all salaried people along with crucial and state government employees.
3. How do you say standard deductions if you are a salaried worker?
To claim the deduction benefit, you most effectively need to tell your company that you have selected the old tax regime. On the idea of those statistics, well-known deduction on salary may be applied routinely.
4. Can medical and transport allowances be claimed with standard deductions?
No. According to current guidelines, you can only declare a standard deduction on salary. Medical and transport allowances that had been available in advance can not be claimed.