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
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Example of the Standard Deduction from salary
- Given below are salary details for FY 2020-21
|Less: HRA exemption||90000|
|Less: LTA exemption||130000|
|Less: Other exemption||150000|
|Net Salary (A)||80000|
Rs. 50,000 or
Amount of salary i.e. 80,000
(lower of both) (B)
|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.
- 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.