What is the meaning of Standard Deduction under the Income Tax Act?

  • Standard deduction is a fixed deduction of 50,000 allowed from the gross salary in order to arrive at the taxable salary. This tax benefit can be claimed irrespective of actual amount spent under:
  • Transport allowance
  • Medical allowance
Table of Content

Example of the Standard Deduction from salary

  • Given below are salary details for FY 2020-21
Particulars Amount
Gross Salary 4,50,000
Less: HRA exemption 90000
Less: LTA exemption 130000
Less: Other exemption 150000
Net Salary (A) 80000
Standard Deduction

Rs. 50,000 or

Amount of salary i.e. 80,000

(lower of both) (B)

50,000
Taxable Salary (A) – (B) 30,000

What is the purpose behind introducing Standard Deduction?

The purpose behind introducing standard deduction are as follows:

  • It reduces a taxpayer’s taxable income that ensures that only households with income above certain thresholds will pay any income tax. In other words, it provides a relief to middle class salaried employees.
  • This will reduce paperwork and allow deduction irrespective of actual expenses.
  • To provide benefit to pensioners.

Limit of Standard Deduction

  • As per the provisions of Income Tax Act, the amount of standard deduction cannot exceed the salary amount.
  • The maximum amount of standard deduction that can be claimed will be lower of following:
  • Salary Amount or,
  • Rs 50,000

How is the Standard Deduction calculated in case of more than one employers?

  • Standard deduction is the overall limit for a whole year and it is not available on the basis of number of employers.
  • For instance, Mr. Shyam worked for 3 employers during the financial year 2018-19. Now, the question arises that how much amount of standard deduction Mr. Shyam can claim?

Option 1: Rs.50000

Option 2: Rs.150000

Mr. Shyam can claim the deduction of amount of Rs.50000 and the amount of standard deduction does not depend on number of employers.

FAQs

  • Is standard deduction available for senior citizens also?
    Yes, standard deduction is available to all salaried taxpayers.
  • Is standard deduction depends on income tax slab?
    Standard deduction is available to all salaried taxpayers irrespective of their income tax slab.
  • Whether the standard deduction is calculated monthly or annually?
    Standard deduction is not provided on monthly basis but it is provided for a whole year.
CategoryIncome Tax
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