What is Standard Deduction for Salaried Individuals?
Apart from imposing taxes, the Income Tax Act also offers different ways by which an individual can claim rebates and deductions. The deductions that can be claimed will depend on how the taxpayer invests his/her income.
One such deduction available to salaried individuals is the standard deduction. Salaried individuals and pensioners can automatically claim a specified amount under the standard deduction, without needing to invest or spend money.
What is Standard Deduction under the Income Tax Act?
Salaried individuals can claim a deduction called the standard deduction. A certain amount can be claimed by pensioners and salaried individuals without making any investment.
The standard deduction that can be claimed by salaried individuals is Rs.75,000 under the new tax regime, effective from FY 2024-25. Earlier, the standard deduction was Rs.50,000, and there has been no change in the old tax regime with respect to standard deduction.
Standard Deduction on Salary
It is important to understand the comparative tax benefit provided under the Standard Deduction under the Income Tax Act for various years since its inception:
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 |
Standard Deduction under the New Regime
The Budget 2020 introduced a new tax regime offering taxpayers the option to pay concessional tax rates, but it restricts most major deductions and exemptions. However, the Budget 2023 was amended to allow a standard deduction of Rs 50,000 in the new regime. This means that for FY 2023-24, you can claim a standard deduction of Rs 50,000 under both the new and old regimes. For FY 2024-25 onwards, the standard deduction in the new regime has been increased to Rs 75,000, while the old regime continues to offer a Rs 50,000 deduction.
The standard deduction under the New Regime is given below:
Particulars | FY 2022-23 (Old Tax Regime) | FY 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 |
Taxpayers who Receive Pension
As per the clarification received by the Income Tax Department, pensions received from a former employer are taxable under the category 'Income from Salaries.' Consequently, the taxpayer is eligible to claim a standard deduction of Rs. 50,000/Rs. 75,000 or the pension amount, whichever is lower.
New Tax Regime - Standard Deduction
As per Budget 2020, a new tax regime was introduced. As per the new income tax slabs, exemptions and deductions are not allowed. Therefore, standard deduction is not allowed under the new regime. However, taxpayers have the option to choose between the old regime and the new regime.
Documents required to claim standard deductions:
To claim the standard deduction on salary income, no specific supporting documents are necessary. However, when filing your income tax returns, you will need to provide the following documents and complete the required forms:
- Bank statements for the applicable financial year.
- Income statements from interest or fixed deposits.
- TDS (Tax Deducted at Source) certificates.
- Investment-related documents.
- Form 26AS and Form AIS.
FAQs on Standard Deduction
- How much is the standard deduction for FY 2024-25?
The standard deduction for FY 2024-25 is Rs.75,000.
- Does the standard deduction apply to seniors as well?
Yes, regardless of age, all salaried taxpayers and pensioners are eligible for the standard deduction.
- To claim a standard deduction under income tax, do I need to provide proof?
The standard deduction is a set amount that does not need an employee to provide the employer or IT Department with any supporting documentation.
- If my income is higher than Rs.5 lakh, am I still eligible to claim the regular salary deduction?
No matter how much money you make, you can still take the usual salary deduction. You will receive the advantage if you receive a salary. In this instance, the pay amount is unimportant.
- What part of the Income Tax Act deals with standard deductions?
The Income Tax Act's Section 16(ia) addresses the standard deduction.
- Can an employee deduct both their standard deduction and their income taxes?
Yes, an employee may deduct both their standard deduction and their income taxes.
- Does India have a standard deduction for self-employed people?
Self-employed individuals do not receive a salary. They make money via their business. Therefore, since the standard deduction is only accessible from salary income, self-employed people are unable to claim it.
- How often is the standard deduction determined?
Salary deductions, also known as standard deductions, are not computed on a monthly basis. At the time of submitting an ITR for the assessment year, a flat deduction is permitted.
- Are employees of the central or state governments subject to the standard deduction?
Yes, employees of the central or state governments are eligible for the standard deduction.
News about Standard Deduction
Union Budget 2024: Standard Tax Deduction for New Tax Regime
The Minister of Finance, Nirmala Sitharaman, updated the tax structure in the new tax regime in the Union Budget 2024. For individuals choosing the new tax regime, the standard deduction for salaried employees will rise from Rs. 50,000 to Rs. 75,000.
Additionally, the deduction for family pensioners will increase from Rs. 15,000 to Rs. 25,000. According to the Finance Minister, these changes will benefit approximately four crore salaried and pensioner individuals.
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