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Salary Deduction: Standard Deduction for salaried individuals and for pensioner

Updated on: 17 Jan, 2024 04:33 PM

Deductions are like financial shortcuts, helping you reduce the amount of income that gets taxed. One key player in this money-saving game is the standard deduction. Instead of diving into the complexities of itemizing every expense, the standard deduction offers a straightforward way to trim your taxable income. Salaried individuals can claim it without any investment. The standard deduction for salaried employees is a flat ₹50,000 from total income under the head salary. Let us read more and understand about standard deduction under Income Tax Act.

Budget 2023 Update

Till FY 2022-23, the limit of the standard deduction of Rs 50,000 was available only under the old regime. As per Budget 2023, salaried taxpayers are now eligible for a standard deduction of Rs. 50,000/- under the new tax regime also.

What is Standard Deduction for Salaried Individuals?

The standard deduction is a flat deduction of Rs. 50,000/- from your income that is taxable under the head salaries. Additionally, taxpayers need not submit any disclosures or investment proofs to avail of this deduction.

Standard deduction on income tax was introduced in Interim Budget 2019 and replaced two deductions that were offered earlier – travel allowance and medical deduction.

What is Standard Deduction for Senior Citizens?

The legal framework in India recognizes individuals aged between 60 and 80 years as senior citizens, a classification that comes with certain privileges and responsibilities. Specifically, a pension serves as a stipend or periodic allowance granted to individuals, especially senior citizens, in acknowledgment of their past service.

In alignment with the Indian Taxation System, the pension received by senior citizens from their former employers is considered taxable income and falls under the category of 'salaries.' This implies that senior citizens need to adhere to tax regulations applicable to salary income.

Section 16 of the Income Tax Act provides relief to pensioners by allowing them to claim a deduction of up to Rs. 50,000 per annum or the actual amount of the pension, whichever is less. This provision has a dual effect: it recognizes the financial challenges faced by senior citizens and provides a means to mitigate their tax liability.

It's noteworthy to mention that the reintroduction of standard deduction has further alleviated the financial burden on senior citizens. The standard deduction is a fixed amount deducted from the total income before calculating the taxable income. This measure not only simplifies the tax calculation process but also contributes to the overall financial well-being of senior citizens.

Standard Deduction under New Tax Regime

In a significant shift post the 2023 Budget, the standard deduction, previously exclusive to old regime taxpayers, has been broadened to encompass new regime taxpayers as well. This means that as of the financial year 2023-2024, all salaried taxpayers can now benefit from the standard deduction, regardless of their chosen tax regime.

Adding to this positive change, pensioners now stand to gain from a standard deduction of Rs 50,000 under the new income regime introduced in Budget 2023. This move reflects a thoughtful expansion of benefits, especially designed to provide additional financial relief to pensioners and align with the government's commitment to addressing the diverse needs of taxpayers.

Example of Standard Deduction

Particulars Amount
Gross Salary Income Rs 8 Lakh
Less: Standard Deduction Rs 50,000
Net Salary Income or Gross Taxable Income Rs 7.5 Lakh
Less: Deduction under Section 80C Rs 1.5 Lakh
Net Taxable Income Rs 6 Lakh

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 middle-class salaried individuals.
  • To provide benefits to pensioners.

What are income tax exemptions for salaried employees?

The standard deduction is an Income Tax exemption that helps middle-class employees in terms of reduction in their tax liability.

The income tax exemptions for salaried employees are as follows:

Particulars From F.Y. 2019-20 till today(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 savings compared with FY 18-19
Tax savings 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 are income tax deductions for salaried employees?

The amount of standard deduction cannot exceed the salary amount. The amount of deduction will be Rs. 50,000/- or equal to the salary amount, whichever is lower. The principal amount that is paid against a loan taken for higher studies or your dream home is eligible for a standard deduction for salaried people. One can typically claim up to Rs. 1.5 lakh on other kinds of investments, and up to Rs. 2 lakh for a home loan on principal amount.

You can make claim deductions of income tax for salaried people under section 80C, 24, and Section 80E.

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

The standard deduction is not available on the basis of no. of employers. The standard deduction on salary 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 2022-23. In that case, you may come up with doubt about how much amount of a standard deduction Mr. A can claim

Option 1 Rs. 50,000
Option 2 Rs. 1,00,000 (Rs. 50,000 for each employer)

The correct Answer is Option 1, i.e., Mr. A can take benefit of the standard deduction upto Rs. 50,000/-

Documents required for standard deduction

Not required any supporting documents for claim the standared deduction.but for the purpose of return filing of salaried individual following documents are required.

  • Bank statements of realted previous year.
  • Income statements from interest or fixed deposits.
  • TDS (Tax Deducted at Source) certificates.
  • Investment documents.
  • Form 26AS and Form 1040.

Who is eligible to claim a standard deduction?

The standard deduction can be claimed by individuals receiving salary and pension, excluding business owners. Although for the following cases, the standard deduction will not be applicable:-

  • Married individuals filing separately if the spouse itemizes deductions.
  • Taxpayers with dual status or non-resident alien status during a specific fiscal year.
  • Taxpayers filing returns for a period of less than a year.

Just like standard deduction, there are various other allowances and exemptions that can be availed of by salaried individuals. But keeping track of all the potential deductions, exemptions, and allowances can be difficult, especially for laymen. There is a high possibility of missing out on a potential tax-saving deduction while ITR filing. Don’t worry! We at tax2win have got you covered. If you are someone who is comfortable with your taxes, you can file your own ITR with tax2win. And if you feel uncomfortable at the mere thought of taxes, then the best way out is to take help from an expert to make sure you never miss out on any possible deduction.

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Frequently Asked Questions

Q- Is standard deduction available to senior citizens also?

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

Q- What is the limit of standard deduction?

The standard deduction of Rs. 50,000 is fixed irrespective of the annual income.

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

The standard salary deduction is available irrespective of your salary amount. The benefit will 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 a standard deduction under Income Tax?

The 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 Deductions under chapter VIA (like deduction u/s 80C, 80D, etc.)

Standard Deduction Chapter VI-A Deduction like sections 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 the 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 deduction & 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 on salary, or salary 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 a salary income. They have 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 e-filing. The benefit of standard deduction is also available in Form-16 if you have opted for the Old Tax Regime. benefit of the standard deduction is not available under the new Tax Regime. As per Budget 2023, Salaried taxpayers are now eligible for standard deduction of Rs. 50,000/- under the new tax regime also from Financial Year 2023-24.

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 filing Income Tax Return 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 16(ia)?

Standard deduction means a flat deduction to individuals earning salary or pension income if they have opted for the Old Tax Regime. It was introduced back in Budget 2018 in lieu of exemption of transport allowance and reimbursement of miscellaneous medical expenses. For FY 2022-23 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 amounting to Rs. 50,000 and is available without any receipt or any documentary proof.

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 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.