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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.
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 -
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 |
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.Â
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 -
Individuals getting salary and pension can claim for standard salary deduction and not a businessman.
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.
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 -
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.
Please try one more time!
