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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