Standard deduction for Salaried employees

Salaried employees in India often seek clarity on the various deductions and exemptions available to reduce their taxable income. One such benefit, the standard deduction, is a straightforward yet effective tax-saving tool. Here’s everything you need to know about it.

What is Standard Deduction?

The standard deduction is a flat deduction available to salaried individuals and pensioners, introduced to simplify the process of claiming tax benefits. It replaces allowances such as transport allowance and medical reimbursement, offering a single, unified deduction.

Current Limit for Standard Deduction

As per the Income Tax Act, 1961, salaried employees and pensioners can claim a standard deduction of ₹50,000 in Old regime and ₹75,000 in New regime from FY 24-25. This deduction is directly subtracted from the gross salary, reducing the taxable income.

Eligibility for Standard Deduction

1. Salaried Employees: Individuals earning income under the head “Salaries” are eligible.
2. Pensioners: Pension income received from a former employer is also considered under the head “Salaries,” making pensioners eligible for this deduction.

Benefits of Standard Deduction for salaried employees

1. No Documentation Required: Unlike other deductions, the standard deduction doesn’t require any receipts or proof.
2. Uniformity: It applies to all eligible taxpayers regardless of their salary structure.
3. Tax Relief: It provides relief by reducing the taxable income, leading to lower tax liability.

Calculation Example

Let’s consider a scenario:

• Gross Salary: ₹8,00,000
• Standard Deduction: ₹50,000
• Taxable Income: ₹8,00,000 – ₹50,000 = ₹7,50,000

This means the employee will pay tax only on ₹7,50,000.

Comparison with Previous Regime

Earlier, employees could claim:

• Transport Allowance: ₹19,200 per annum
• Medical Reimbursement: ₹15,000 per annum

The introduction of the standard deduction of ₹50,000 replaced these, offering higher tax savings for most individuals.

Impact of the Standard Deduction on Pensioners

Before its reintroduction, pensioners were not entitled to claim benefits like transport allowance or medical reimbursement. The standard deduction has simplified tax compliance for pensioners, allowing them to save significantly on taxes.

How to Claim Standard Deduction?

The standard deduction is automatically accounted for by employers while calculating the taxable income of employees. Pensioners can claim it while filing their Income Tax Return (ITR).

Conclusion

The standard deduction for salaried employees is a simple yet effective mechanism to lower tax liability without the hassle of maintaining bills or receipts. Whether you’re a working professional or a pensioner, understanding and utilizing this benefit can significantly impact your tax savings.

Optimize your tax planning today by leveraging the standard deduction and other available exemptions and deductions to minimize your taxable income effectively.

FAQs on Standard Deduction

1. Can freelancers claim standard deduction?
No, the standard deduction is available only for income taxable under the “Salaries” head.

2. Is standard deduction available in both old and new tax regimes?
Yes the standard deduction is applicable to both.