Are you a salaried person? If yes, then you need to know this!

Every month when you receive salary, a list of expenses is already on your head. Be it children’s school fee, wife’s favorite saree or a smartphone you wanted to purchase since long.

Managing these expenses is already a headache, on top of that every year budget gives you negative surprises. No extra relief in deductions in tax slab rates etc.
While presenting Budget 2018, our dear finance minister brought back standard deduction for salaried class individuals from F.Y 18-19 onward.
Now, you must we wondering, How this new change will impact my savings when it is already difficult to save from the salary every month?
Get ready for a surprise, because this change will increase your income saving by further ? 5800/-. (Net tax saving will be ? 1740 assuming you fall into 30% slab rate).
Bet this brought a big SMILE to your face! And we will even prove it to you. Before that, let us dig into some basics of the standard deduction.

What is Standard Deduction?

Standard deduction means a flat deduction which would be provided from the salary income of an individual. It simply means that you can remove the standard amount directly from your net salary without actually incurring any expense.

Amazing isn’t it?

How much money is allowed as Standard Deduction?

As per Budget 2018, Rs 40,000 can be claimed by any person having income from salary in lieu of medical reimbursement and transport allowance.
With the amendment as per Budget 2019,the said amount has been increased to Rs.50000 and it can not be claimed by salaried employees but also by pensioners who receives pension directly from their former employees. However, in case of pensioners, the amount as deduction is: whichever is lower

  • Actual pension received or
  • Standard deduction i.e. Rs.40000(For F.Y. 2018-19) or Rs. 50000(For F.Y. 2019-20 onwards)

How it is beneficial for you?

How it is beneficial

As you can see above, how this new change increases your saving by Rs 5,800 [40,000 – (19200+15000)] for F.Y. 2018-19 and savings of Rs.15,800/- for F.Y.2019-20 onwards.

No Proof Required

The employees are required to submit proof to their employers to claim their Allowances.

With the introduction of the standard deduction, you can claim this deduction of Rs 40,000 without any proof! But from now onward, no benefit can be availed under medical & transport allowance as they have been abolished w.e.f budget 2018.

In simple words, whether you incur any expense on transport, medical or any allowance, you can reduce Rs 40,000 straight-away.

But Mr Jaitley also played a GAME with you!

We told you how standard deduction gave you an income saving of Rs 5,800/-.

But our dear finance minister, side by side increased the amount of Cess from 3% to 4%. This further reduced the net benefit received by you from standard deduction.

To Conclude

Yes, it can be said that with the introduction of the standard deduction for salaried persons, some benefit has incurred in the form of savings in income.

But it would have been more beneficial if the cess amount would not have been increased.
You do not need to worry about it! We will plan your taxes to ensure that you get maximum deduction & maximum refund within the shortest time.
Get in touch with our eCAs now! Happy Filing ????

Standard Deduction Summary

Standard Deduction Summary

Frequently Asked Questions

Q- Is standard deduction applicable to employees of Central or State Government?

Ans. W.e.f. Assessment year 2019-20, the standard deduction is allowed while computing income chargeable under the head salaries. It is available to all class of employees irrespective of the nature of employer. Standard Deduction is also available to pensioners. Amount of Standard Deduction is Rs. 40,000 or amount of salary/pension, whichever is lower.
However, the Finance Act, 2019 has increased the maximum amount of standard deduction from Rs. 40,000 to Rs. 50,000.

Q- Can I claim standard deduction with other deductions?

Ans. You can claim other deduction except transport allowance and medical allowance and for pensioners pension income.

Q- Is standard deductions of Rs 40,000 under section 16 applicable to a person whose only source of income is interest from FDs?

Ans. No, only salaried assessee can claim standard deduction of Rs. 40,000 under section 16.

Q- Is a standard deduction component mandatory to build a pay scale? I don't have one in my salary structure. Who defines it and how do I get it added to avail tax exemption?

Ans. Standard deduction is not part of your CTC structure or pay structure but it comes to picture when income tax is calculated.

Q- My payslip says that I have deductions U/s (10) and (17), amounting to INR 87168. What does this mean?

Ans. I think it is exemption and not a deduction. Section 10 and 17 are exemption from income tax in matters like Allowances and Perquisites. Like Transport allowance is exempt upto Rs.1600 per month and Perquisites are facility provided to employees without cost.

Q- How do I claim deductions (conveyance allowance) not accounted by the employer in ITR?

Ans. An employee can claim exemptions for any allowances in his return of income even if his employer didn’t consider them while deducting the TDS from his salary. Exempted allowance shall be reduced from the taxable salary, as shown in Form 16, and balance will be reported in ITR form.

Q- I have salary income of 4,70,000 and LTCG on equity shares of Rs. 90,000. My total income before LTCG exemption and after standard deduction is Rs. 5,10,000 in this case. Will I get the rebate u/s 87A for AY 20-21?

Ans. LTCG of upto 1 lac a year is exempt from tax. My belief is that this 90,000 of LTCG would get cancelled out before the taxable income is calculated. Your taxable income would then be only the salary income, and hence you would get the rebate since the income is below 5 lacs.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.