Standard Deduction On Salary For Employees
Income tax act includes standard deduction on salary for reducing tax liability on income. Salaried individuals can claim it without any investment.
Finance Minister Arun Jaitley reintroduced it in the budget of 2018, which is continuing till date. It is a matter of great relief for the salaried class.
What Is Standard Deduction for Salaried Employees?
The standard deduction for salaried employees is a flat ₹50,000 from total income under the head salary.
The main objectives for implementing the standard deduction are -
- Reduce the paperwork
- Allow income tax deduction irrespective of the actual spending.
- To benefit pensioners from the income tax deduction.
It is usually deducted from your gross salary, and it can be claimed as an exemption irrespective of any further investment.
The following table states an example of standard deduction under salary components.
| Salary Components | Financial Year 2022-23 |
|---|---|
| Gross Salary | ₹ 10,00,000 |
| Leave transport allowance | NA |
| Medical allowance | NA |
| Standard deduction | ₹50,000 |
| Net salary | ₹9,50,000 |
What is Standard Deduction Limit on Salaried Employees in New vs Old Tax Regime?
The new tax regime is introduced in the budget of 2020, which allows concessional rates; however, there are no exemptions or standard deductions for salaried persons. The new regime has lower rates of income tax up to ₹15,00,000.
You have the option to choose between old or new regimes while filing a return. Even pensioners can switch between these choices.
| Income Slabs | Tax Rate (Old System) | Tax Rate (New System) Without Exemptions and Deductions |
| Up to ₹ 2.5 lakh | NIL | NIL |
| ₹ 2.5-5 lakh | 5% | 5% |
| ₹ 5-₹7.5 lakh | 20% | 10% |
| ₹ 7.5-₹10 lakh | 20% | 15% |
| ₹ 10-₹12.5 lakh | 30% | 20% |
| ₹ 12.5-₹15 lakh | 30% | 25% |
| Above ₹ 15 lakh | 30% | 30% |
According to the new regime, it is applicable if the taxpayer forgone deduction and exemptions under the following heads -
- Standard deduction of ₹ 50,000.
- Deduction under section 80C maximum up to ₹ 1,50,000.
- Deduction under section 24 maximum up to ₹ 2,00,000.
- Entertainment allowance and professional tax deduction under section 16(ii).
- Leave travel allowance.
- House rent allowance.
- Premium of medical insurance between ₹ 25,000 to ₹ 50,000.
- Interest in savings accounts under section 80TTA up to ₹ 10,000.
- Interest on savings accounts for senior citizens under section 80TTB up to ₹ 50,000.
Who Can and Cannot Claim Standard Deduction?
Individuals getting salary and pension can claim for standard salary deduction and not a businessman.
What Is the Threshold Limit of Standard Deduction?
As already mentioned, the maximum standard deduction salary limit is ₹50,000 or net salary amount, whichever is lower.
The table given below serves as an example.
| Salary Components | Amount |
|---|---|
| Gross salary | ₹ 3,50,000 |
| HRA exemption | ₹ 80,000 |
| Leave travelling allowance exemption | ₹ 1,10,000 |
| Other exemption | ₹ 1,30,000 |
| Net salary | ₹ 30,000 |
Here standard deduction will be ₹30,000 as it is lower than ₹50,000. Standard deduction on salary income is calculated on total income in a given fiscal year.
Documents Required for Standard Deduction on Salaried Employees
No documents are necessary to claim the standard deduction for salary income. However, you have to submit the following documents and fill up some forms for general IT return -
- Bank statement of the specific financial year.
- Income statement from interest or fixed deposits.
- TDS certificate.
- Investment documents.
- Form 26AS, 1040.
How to Claim Standard Deduction for Salaried Employees?
You have to notify your employer regarding your choice of the new or old regime of standard deduction on salary. Now the deduction will be implemented automatically on your salary. While filing the income tax return, you may change your choice between the new and old regime again. According to your choice, your tax liability will come.
Standard deduction on salary is directly applicable on salary and is implemented with an objective to reduce paperwork and the filing process. Here we have tried to explain to you every detail to help in deciding between new and old regime. However, both have equal benefits to safeguard your interest.
Frequently Asked Questions
Should a person getting a high deduction on HRA under Section 80C and 80D opt for the new or old regime?
This person should opt for the old regime to avail of maximum benefit because HRA exemption and 80C 80D exemptions are not available under the new regime.
Can all senior citizens avail themselves of standard deduction benefits?
Yes, they can only if they are getting a salary or pension.