Do you know the actual impact of the standard deduction on your tax calculation? I think every employee or pensioner intend to know what the standard deduction actually is and how it becomes beneficial to him or her.
What is a standard deduction?
The standard deduction is a straight lump sum exemption from gross income in respect of income tax calculation for salaried employees and pensioners. The exemption is exclusively limited to those who earn their income from the salary or pension head. Besides, the individual enjoys benefit equally irrespective of income group.
It has been discontinued after the financial year 2004-05 and reintroduced with some changes at the budget speech 2018.
The Standard Deduction of Rs. 40,000 is allowed from Salary Income for FY 2018-19. This limit has been increased to Rs. 50,000 from FY 2019-20. As a salaried employee, you can claim the standard deduction of Rs 40000/- from your gross income for the FY 2018-19. Consequently, you can enjoy the standard deduction of Rs 50000/- for the FY 2019-20.
Most importantly, you need not submit any Disclosures or Investment Proofs to claim this exemption. Individuals can enjoy the deduction under Section 16 of the Income Tax Act. It has also replaced the existing exemptions such as Transport allowance maximum Rs 19200/- and Medical Allowance Rs 15000/-.
To whom is the standard deduction applicable to?
The Standard Deduction is applicable to the central government employees as well as the state government employees. Worth mentioning, it is also applicable to all the pensioners who receive a pension from their last employer. As per section 16 of the IT Act, individuals who earn their income from salary head can enjoy the exemption. Because the gross income is considered while deriving the income tax in case of salaried taxpayers. On the other hand, only the net income is considered in the case of others such as self-employed or consultants.
How to claim the exemption of the Standard Deduction
At the time of filing your return, you can claim the standard deduction of Rs 40000/- for the Assessment Year 2019-20 and Rs 50000/- for the Assessment Year 2020-21. While filling your return, you need to enter your annual income first. Then, you can enter the standard deduction and professional tax to reduce your total income.
Conclusion:
Except the Standard Deduction a taxpayer has other various exemptions to claim and can save more tax. There are exemptions under section 80 C to 80 U and also Tax Credit under section 87A. If you need to be up to date with such exemption and deduction, you should follow itrguide.
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