With effect from FY 2024-25, under the new tax regime, the standard deduction is increased to Rs.75,000. There has been no change to the old tax regime with respect to the standard deduction. Thus, salaried taxpayers are eligible for the standard deduction of only Rs.50,000 under the old regime.
Here is everything you should know about the standard deduction for salaried individuals.
Purpose of Standard Deduction
The introduction of standard deduction aims to achieve the following:
- Simplify tax filing by reducing paperwork and enabling deductions regardless of actual expenses.
- Offer tax relief specifically to middle-class salaried individuals.
- Extend benefits to pensioners through the standard deduction.
Standard Deduction in New Tax regime
Budget 2020 introduced the new tax regime. Under this new regime, the taxpayers have the option to pay concessional tax rates. However, major deductions and exemptions are not allowed under this new regime.
Budget 2023 was amended, allowing to claim a standard deduction of Rs 50,000 in the new regime as well. Thus for FY 2023-24 you will be able to claim the standard deduction of Rs 50,000 both under the new and old regime. As mentioned above, the standard deduction under new regime has been increased to Rs. 75,000 for FY 24-25 onwards. In case of old regime, the limit for standard deduction is still Rs. 50,000.
How is standard deduction calculated in the case of multiple employers in one year?
The standard deduction is available as a flat deduction from the total salary earned by the employee in a particular financial year. It does not depend on the number of jobs changed by the employee. Hence one flat deduction is available for the cumulative salary earned from all the employers.
Standard Deduction – Union Budget 2018
Finance Minister Arun Jaitley introduced a standard deduction of Rs. 40,000 in Budget 2018, giving the salaried class something to rejoice about. It replaced the transport allowance of Rs. 19200 and medical reimbursement of Rs. 15,000 per annum.
Interestingly, the provision of Standard Deduction was earlier available. However, it was abolished in the Finance Act 2005.
The standard deduction is usually deducted from the gross salary and claimed as a deduction. This deduction can be claimed by all salaried employees irrespective of category and need of any investment.
Standard Deduction – Interim Budget 2019
The Interim Budget presented on 1 February 2019 included numerous tax benefits for the salaried and the middle class. Among them, an additional amount of Rs.10,000 (increased from Rs.40,000) to the Standard Deduction is a noteworthy move.
With the Standard Deduction being Rs 50,000 now, it will help taxpayers immensely to reduce their tax outgo. Let us understand this with a small example:
| 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 |
From the above, it is evident that the taxable salary has come down on account of the standard deduction.
Standard Deduction for Pensioners
In a recent clarification issued by the Income tax department, if a taxpayer has received a pension from the former employer, it is taxable under the head ‘Income from Salaries’.
Therefore, the taxpayer can claim a standard deduction of Rs. 50,000/Rs. 75,000 or the amount of pension, whichever is less.
Documents Required for Standard Deduction
No supporting documents are required to claim the standard deduction for salary income. However, for filing income tax returns, you will need to provide the following documents and complete the necessary forms:
- Bank statements for the relevant financial year.
- Income statements from interest or fixed deposits.
- TDS (Tax Deducted at Source) certificates.
- Investment documents.
- Form 26AS and Form AIS.
FAQs
Can I claim a deduction of 50,000 for income tax returns filed prior to 2019- 20 as well?
No, you cannot claim a deduction of Rs. 50,000 for the years prior to 2019-20 as the limit then was Rs 40,000.
Can I claim transport allowance and medical allowance as well, along with the standard deduction?
No, you can claim only the standard deduction of 50,000 and not the transport and medical allowance.
I have income from freelancing. Can I claim the standard deduction?
No, Standard deduction is applicable only for individuals having income from Salary. Since Freelancing is considered as income from business and profession same is not eligible for the standard deduction.
Who can claim standard deduction?
Only those individuals having income from Salary can claim the standard deduction.
Is standard deduction of Rs 50,000 applicable in new tax regime?
Yes , As per Finance Act 2023 standard deduction is eligible for deduction both in new and old regime.
What is the standard deduction for FY 2024-25?
The standard deduction for FY 2023-24 is Rs. 50,000.
Is Standard Deduction increased in Budget 2024?
Yes. However it is to be noted that Standard Deduction has been increased from Rs.50,000 to Rs.75,000 only for tax payers opting for new tax regime. This increase is applicable from FY 2024-25.
What is the standard deduction in new tax regime for 2024-25?
Union budget 2024 has proposed an increase in the standard deduction under the new tax regime for the FY 2024-25 to Rs. 75,000.
Is standard deduction 75,000 applicable in old tax regime?
An increased standard deduction of Rs. 75,000 is not applicable under the Old tax regime. However standard deduction of Rs. 75,000 is applicable under the new tax regime for the FY 2024-25.
Can I claim standard deduction of Rs. 75,000 for FY 23-24?
No, the increase in standard deduction limit is for financial year 24-25 onwards.