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Standard Deduction from Salary & Pension Income

Updated on: 03 Aug, 2022 05:55 PM

Comprehensive Guide on the standard deduction, Definition, limit, tax saving impact, example

Standard deduction means a flat deduction to individuals earning salary or pension income. It was introduced in the Budget 2018 in lieu of exemption of transport allowance and reimbursement of miscellaneous medical expenses. For FY 2021-22, the limit of the standard deduction is Rs 50,000. In this guide, let’s cover what deductions are available from the salary and pension income of an individual.

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What is a standard deduction in the Income Tax Act?

Standard deduction is a flat deduction of Rs. 50,000/- from your Income that is taxable under the head salaries. This tax benefit can be claimed irrespective of the actual amount spent on:

  • Transport Allowance and
  • Medical Allowance

Let us understand the comparative tax benefit given by the standard deduction for various years since its introduction:-

Particulars Before Standard Deduction For FY 2018-19 For FY 2019-20 From FY 2020-21
Specific Condition for exemption Should be provided by employer No Requirement/condition No Requirement/condition  Assessee should not opt for the New Tax Regime u/s 115BAC
Transport Allowance Exp  19200 0 0 0
Medical Allowance Exp. 15000 0 0 0
Standard Deduction in place of the above allowances 0 40000 50000 50000
Deductions available 34200 40000 50000 50000

What is the purpose of Standard Deduction?

The purposes of introducing standard deduction are:

  • To reduce paperwork and allow for deductions irrespective of the actual expenses.
  • To provide tax relief to the middle-class salaried individuals
  • To provide benefits to pensioners

What is the Impact of Standard Deduction on Pensioners?

Introduction of standard deduction helped middle-class employees in terms of reduction in their tax liability. The overall deduction benefit was of Rs. 5,800 (Rs. 15,800/- for FY 2021-22).

Standard Deduction Impact on Tax on Salary Income

Particulars F.Y. 2019-20 & F.Y. 2020-21 (old regime) F.Y. 2018-19 Before Standard Deduction
Gross salary 9,00,000 9,00,000 9,00,000
Less: HRA exemption 60,000 60,000 60,000
Less: LTA exemption 85,000 85,000 85,000
Less: Transport Allowance - - -19200
Less: Medical Allowance - - -15000
Less:- Other exemption 20,000 20,000 20,000
Net Salary (A) 7,35,000 7,35,000 7,00,800
Less: Standard Deduction(B) 50,000 40,000 0
Taxable salary(C)= (A)-(B) 6,85,000 6,95,000 7,00,800
Income Tax on (C) 49,500 51,500 52,660
Add: Cess @ 4% 1,980 2,060 2106*
Total tax 51,480 53,560 54766
Tax saving compared with FY 18-19 
Tax saving compared with FY 17-18  
(For comparison Cess taken as 4% (if taken at 3%, then the benefit would have been 2,790 )
2,080
3,286




What is the Impact of Standard Deduction on Pensioners?

The decision to allow standard deductions provided significant benefits to the pensioners. These pensioners normally did not enjoy any allowance on account of transport and medical expenses. However, the benefit of standard deduction will be allowed to pensioners only if the pension is taxable as salary income. If income from other source, then the benefit of standard deduction will not be available.


What is the limit of standard deduction?

The amount of standard deduction cannot exceed the salary amount. The maximum amount of deduction will be Rs. 50,000/- or equal to the salary amount, whichever is lower.


Example of the standard deduction from salary

Here is an example for the standard deduction from the salary details for FY 2021-22

Particulars Amount
Gross Salary  3,50,000
HRA exemption  80,000
LTA exemption  1,10,000
Other exemption  1,30,000
Net Salary 30,000
Standard Deduction
Rs. 50,000 or
Amount of salary i.e. 30,000
(lower of both)
30,000

How is the standard deduction calculated in the case of multiple employers?

Standard deduction is not available on the basis of no. of employers. The standard deduction is the overall limit for a whole year rather than the no. of employers.

Let’s say Mr. A worked for 2 employers during the FY 2019-20. In that case, you may come up with a doubt that how much amount of standard deduction Mr. A can claim

Option 1 Rs. 50,000
Option 2 Rs. 1,00,000 (Rs. 50,000 for each employer)
Correct Answer is Option 1 i.e., Mr. A can take benefit of standard deduction upto Rs. 50,000/-


What is the treatment of standard deduction under the New Tax Regime?

Budget 2020 has introduced a new tax regime (FY 2020-21) under which income would be taxable at lower rates. To avail this option the taxpayer will have to forego major tax exemptions and benefits including standard deduction.

Standard Deduction Impact on Tax on Salary Income

Particulars FY 2020-21 (Old Tax Regime) FY 2020-21 (New Tax Regime)
Income from Salary 3,50,000 3,50,000
Less: Standard Deduction 50,000 -
Taxable Salary 3,00,000 3,50,000

Frequently Asked Questions

Q- Is standard deduction available to senior citizens also ?

Yes, standard deduction is available to all salaried taxpayers & pensioners irrespective of their age.


Q- Can I claim the standard deduction even if my income is more than Rs 5,00,000?

The standard deduction is available irrespective of your income tax slab. The benefit would be given to you if you have a salary income. The amount of salary is irrelevant in this case.


Q- Do I need to submit proof to claim standard deduction under Income Tax?

Standard deduction is a flat deduction for which no proof is required to be furnished by an employee to the employer/IT Department.


Q- How is the standard deduction different from income tax deductions?

Income tax deduction generally means deduction u/s 80C , 80D , etc.

Standard Deduction Chapter VI-A Deduction like section 80C, 80D,etc.
It is a flat deduction irrespective of the actual expenditure. These deductions are available on the basis of the actual expenditure/investment.
This deduction is available only to individuals having income from salary. These deductions are available from all sources of Income.
This deduction is allowed from salary income before arriving at Gross Total Income. These deductions are allowed after calculating Gross Total Income.
The limit of standard deduction is Rs. 50,000/- Limit of deduction varies from section to section.
Like u/s 80C, the limit is Rs. 1,50,000

Q- Can an employee claim both standard deduction & income tax deduction?

Yes, an employee can claim both standard deductions & income tax deductions.


Q- Which section of the Income Tax Act covers standard deduction?

Section 16(ia) of the Income Tax Act deals with the standard deduction.


Q- Whether the standard deduction is calculated monthly?

The standard deduction is not calculated monthly. A flat deduction is allowed at the time of filing ITR for the assessment year.


Q- Is standard deduction available for self-employed in India?

Self-employed people don’t get salary income. They are having a business income. Hence, the standard deduction cannot be claimed by self-employed individuals since the standard deduction is available from salary income only.


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

Yes, the standard deduction is available to central or state government employees,


Q- Is standard deductions of Rs 50,000 under section 16 applicable to a person whose only source of income is interest from FDs?

No, Standard deduction is only available from salary & pension income and not on Income from other sources.


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?

To claim the benefit of standard deduction it is not mandatory to have it mentioned in your pay scale or payslip. You can directly take the benefit at the time of filing ITR. The benefit of standard deduction is also available in Form-16.


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

If you have a payslip with the deductions mentioned then this means you are eligible to claim exemption of the same from your salary income in respect of various allowances and perquisites, etc.


Q- How do I claim deductions not accounted for by the employer in Form-16?

You can claim deductions at the time of return filing if the same is not accounted for by the employer, provided you are eligible to claim the deduction.


Q- What is the Standard Deduction under u/s 16ia?

Standard deduction means a flat deduction to individuals earning salary or pension income. It was introduced back in Budget 2018 in lieu of exemption of transport allowance and reimbursement of miscellaneous medical expenses. FY 2020-21 the limit of the standard deduction is Rs 50,000.


Q- How much Standard deduction can I claim without receipts?

Standard Deduction is a flat deduction and is available without any receipt or any documentary proof.


Q- Will standard deduction change in 2021?

Standard Deduction for the FY 2020-21 is of Rs. 50,000/- same as of in FY 2019-20.


Q- Is standard deduction part of 80C?

No. Standard Deduction of Rs. 50,000/- is over and above the limit of 1,50,000 under section 80C.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. 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.

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