By Neeraj Agarwala
The provision for standard deduction went through a major change in Budget 2018. In order to provide relief to salaried taxpayers, it was proposed to allow a standard deduction of `40,000 in lieu of the erstwhile exemption of transport allowance and reimbursement of miscellaneous medical expenses.
There were some major advantages to this proposal. Firstly, the standard deduction was available to all individuals with income from salary and did not require submission of any proof. By eliminating paperwork and compliance, the administrative burden of the tax department was also alleviated. Further, the decision to allow standard deduction significantly benefit pensioners also, who normally did not enjoy any allowance on account of transport and medical expenses.
Over time the threshold for standard deduction was increased from `40,000 to `50,000 and now the standard deduction is available to all individuals with salary income, irrespective of the tax regime they opt for. So, if you are new to the world of tax, here is everything you need to know about standard deduction:
Not all individuals can claim standard deduction
Standard deductions are available only to individuals earning income from salary or pension. The said income may be earned from employment in India or outside India. For individuals earning income from business or sources other than salary and pension, this deduction is not available. For example, if you are receiving rental income, standard deduction under Section 16(ia) of the Income-tax Act will not be available.
An annual deduction
The standard deduction of `50,000 available is an annual amount, which comes to around `4,167 per month.
The amount of standard deduction is automatically computed while filing the income tax return. It is irrelevant whether the individual has incurred any expenses or not pertaining to his exercise of employment. It is mandatory and available to all salaried individuals.
No losses can be claimed on account of this tax relief
By allowing the standard deduction under the new tax regime, it appears that the government is trying to make the new tax regime more attractive. The paperwork involved to claim deduction is significantly reduced and eventually, the burden of the tax administration will be mitigated.
The writer is partner, Nangia Andersen India. Inputs from Neetu Brahma
Only those earning income from salary or pension can avail of standard deduction
Since it is automatically computed, no proof of expenses is needed
This deduction is available under both old and new tax regime