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Standard Deduction

July 10, 2018

Budget 2018 gives Rs.40,000 standard deduction, removes other allowances.

With effective from 1st April 2018,
  • Std Deduction of Rs.40,000 would be allowed from salary income.
  • At the same time, Transport Allowance of Rs.19,200 and Medical Reimbursement of Rs.15,000 has been scrapped.
  • So on a net basis, an additional deduction of Rs.5,800 is applicable for a person having "Income from Salary".
  • It has been reintroducing by amending the Finance Act 2018.
  • It is available under Section 16(ia) of the IT Act, 1961.

Standard Deduction for Salaried Individuals

  • It basically a specified amount(i.e.Rs.40,000) subtracted from the salary income of an individual before calculation of taxable income.
  • Since a fixed amount is deducted from the annual salary, it reduces the taxable income, and hence the tax paid amount will also reduce.
  • Std Deduction is supposed to take care of expenses which are not allowed as a deduction under income tax rules.

FY 2017-18

  • The std deduction has been introduced in lieu of Transport and Medical allowances which was earlier allowed to the employees.
  • The employee required to submit bills as proof for claiming those benefits.

FY 2018-19

  • Std Deduction of Rs.40,000/- would be allowed to be claimed.
  • The employee is also not required to submit bills to the employer for claiming this deduction.

Std Deduction for Pension income

  • Std Deduction of Rs.40,000 is also available for a person having pension income from the former employer.
  • In such cases, pension income is taxed under the head of "Income from Salaries" and accordingly the deduction of Rs.40,000 is available.

How it Impact your IT?

  • As std deduction is introduced instead of transport and medical allowances, the net increase in deduction will be maximum of Rs.5,800/-.
  • In the meantime, it will help the salaried class in 30% tax bracket to save Rs.1800 in terms of IT payout.
  • Also, the increase in cess from 3% to 4% for individual taxpayers takes away some benefits from the introduction of the std deduction.

Here's how these tax changes will impact your tax liability going advance in 2018-19 (Assessment Year 2019-20) if you are a salaried employee below 60 years of age.

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Tax Calculation for Individuals

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To check the previous blog please find the link below:
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