Standard Deduction On Salary For Employees

What Is Standard Deduction for Salaried Employees?

The standard deduction for salaried employees is a flat ₹50,000 from total income under the net salary. It is not applicable to transport allowance and medical allowance.

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 2020-21

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?

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

How to Claim Standard Deduction for Salaried Employees?

Frequently Asked Questions