Rs 40,000 Standard Deduction from FY 2018-19 | Does it really benefit the Salaried?

Standard deduction

In the Union Budget 2018-19, the Finance Minister has proposed to provide Rs 40000 Standard Deduction from salary income to all employees & pensioners.

As per the Tax rules that are applicable for FY 2017-18 (AY 2018-19) ;

  • A Salaried individual can claim annual Transport allowance (conveyance allowance) of up to Rs 19,200 (Rs 1,600 pm) and up to Rs 38,400 (Rs 3,200 pm) by differently-abled persons.
  • The Salaried can also claim up to Rs 15,000 (Rs 1,250 pm) medical reimbursement. To claim this, you would have been submitting medical bills to your employer and getting the allowance benefit.
  • These allowances are part of Section 10 of the Income Tax Act.

You can find these allowances listed under Part-B of your Form-16, as shown in the below image. (Related Article : ‘Understanding your Form 16 & other Tax related forms -Form 16A & Form 26AS‘)

Medical allowance form 16

With effective from FY 2018-19, a standard deduction of Rs 40,000 in lieu of travel and medical allowances has been proposed for salaried employees and pensioners.

However, the transport allowance at enhanced rate (i.e., Rs 3,200 pm) shall continue to be available to differently-abled persons. Also, other medical reimbursement benefits in case of hospitalization etc., for all employees shall continue.

Latest Update (01-Feb-2019) : Budget 2019 – The existing limit of Rs 40,000 as Standard Deduction is proposed to be increased to Rs 50,000 from FY 2019-20 / AY 2020-2021

What is Standard Deduction? How to claim Rs 40000 Standard Deduction?

A Standard Deduction is nothing but a fixed amount of deduction. There are two types of Standard deductions that are now allowed in FY 2018-19 / AY 2019-20.

  • An amount of Rs 40,000 which can be reduced by taxpayers receiving salary or pension income, from their gross salary. A similar provision of Standard Deduction from Salary Income was earlier available but was abolished in the Finance Act 2005 (new provision as per Budget 2018-19).
  • Standard Deduction @ 30% can be reduced from ‘Income from Rent receivables’ under the head ‘Income from House property (existing provision).

How to claim a standard deduction of Rs 40k?

To claim this standard deduction, there is no need to submit any bills to your employer(s) or the IT department.

As per this new provision, irrespective of amount of taxable salary the assessee will be entitled to get a deduction of Rs.40,000 or taxable salary, whichever is less.

Thus suppose if a person has worked for few days (or) months and his salary was just Rs 40,000 in current financial year, then he/she will be entitled to a deduction equal to salary being the same amount.

If his salary is less, say Rs 30,000 the deduction shall be restricted to Rs 30,000. If salary exceeds amount of Rs 40,000, the deduction shall be restricted to Rs 40,000.

So, ideally your Form-16 will reflect a fixed deduction of Rs 40,000 in lieu of Conveyance and Medical allowances w.e.f AY 2019-20.

How much Tax can be saved with a Standard deduction of Rs 40,000?

A standard deduction of Rs 40,000 from your salary income can entitle you an additional income exemption of Rs 5,800 (max). Let’s understand this with an example ;Rs 40000 Standard Deduction FY 2018-19 AY 2019-20 how much tax can you save

So, Rs 40000 standard deduction can lower your taxable salary income by a maximum of Rs 5,800. Then, what would be the impact on your tax liability? How much you can save in taxes?

The tax saved for each employee on this income would depend on the tax slab that income falls into.

  • The saving in tax would be Rs 290 for those currently paying 5% tax on this income (Rs 5,800 * 5% = Rs 290)
  • Rs 1,160 for those paying 20% as tax on this income (Rs 5,800 * 20% = Rs 1,160) and
  • Rs 1,740 for those paying 30% tax on this income (Rs 5,800 * 30% = Rs 1,740).

However, these tax-savings would be nullified in most cases, except in the case of income up to Rs 5 lakh, due to increase in the cess payable from current 3% to 4% on the rest of the income tax payable by the individual. (Until FY 2017-18, there is 3% cess on personal income tax (2% for primary education and 1% for secondary and higher education). This will be replaced with 4% Health & Education Cess.)Impact of Standard Deduction Rs 40000 on income tax calculation tax liability tax savings benefit additional tax

In fact, individuals with income above Rs 5 lakh can end up paying more tax after taking into account the standard deduction, the removal of the allowances and the increase in cess rate. The ‘net benefit’ as shown in the above calculation turns negative and the individuals with higher salary income end up paying additional tax due to increase in CESS rate.

However, this move can benefit the pensioners substantially, as earlier they did not get any standard deduction or any of the other allowances given to salaried employees.

Though the impact of this amendment for the salaried may appear to be minimal, employers, however would stand to gain in terms of being spared of a whole lot of administrative efforts in processing medical bills of its employees.

(Image courtesy of pakorn at (Reference : The Economic Times) (Post published on : 02-April-2018)

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  • Krishna Raju says:

    Is pension from EPFO is taken as salary for claiming Standard Deduction for the FY 2018-19, I get Rs 1190 per month as pension, Also interest on LIC Pension Yojana is treated as salary for claiming standard deduction. Thanks.

  • Suphal Mallick says:

    I wanted to know the amount of SD for the fy 2018-19 for senior citizens who are getting pension only.

  • Eleyamma says:

    Dear Sreekanth,

    Can HRA deduction be availed along with standard deduction of 40K? HRA deduction was not allowed in form 16 by the employer.

  • shivam says:

    Dear Sir,

    If employess has left in the mid of the year say after 6 months and his salary is Rs 5 L , how much should be allowed as Std Deduction Rs 40O or Rs 20 K (for 6 months)

    • Sreekanth Reddy says:

      Dear Shivam,
      For the entire FY 2018-19, it is up to Rs 40,000.
      In this case, even if he does take up any new job, the SD would be still be Rs 40,000.

  • MK Mukherji says:

    Rs.40,000/- what a big bonanza for tax payer but on ground this is a big ZERO.The salaried class may end up paying more.Income up to Rs.500,000/-is the biggest gainer.Pensioner will benefit a little but rest may pay little more as the cess has been increased from 3% to 4%. Practically who is fooling whom ???? -MK

  • Dr. Prasad says:

    Dear sir, if my employer does not show standard deduction of 40k in form 16 can i deduct the same while filing ITR1?

  • susil kumar sahu says:

    dear sir,
    i am a state government servant. AY-2018-19 i did not claim transport allowance/medical allowance in my IT return.And no such type of allowance are add in my income this AY2019-20. my question is can i deduct SD 40k from my gross salary?

  • Manu Nambiar says:

    If i workerd for 2 companies in a Financial year . can I avail Standard deduction from both the companies eg : wokrd for Compan-A – 8 Months and company B. 4 Months. Please clarify

    • Sreekanth Reddy says:

      Dear Manu,
      The maximum that can be claimed as Standard deduction for FY 2018-19 is Rs 40,000 from the Salary income.

  • Pratibha says:

    Hello Sir
    I am a salaried person.but I don’t receive transport or conveyance allowance. Whether I can avail benefit of this standard deduction

  • Suresh Rai says:

    It is very useful advice giving by you to Taxpayer. Thanks

  • Shrikant Bhat says:

    Dear Sreekanth Reddy, I am Shrikant Bhat.

    Thanks a lot for publishing informative information!

    Your cool reply to repeated queries are also appreciable. [e.g. SD in r/o non sal. income.]

    Kindly clarify me on the following:
    1. I am working on behalf of a DDO who is responsible for dedn. of tax from the Pay of the employees in his Pay bill register.
    2. Older employees are covered by Gen. Provident Fund (GPF) with 6% mandatory subscription – but usually all subscribe at much higher rates to claim 80 C exemptions.
    3. GPF accounts are maintained by our PAO & they add interest and after the close of the financial year they send balance sheet to update balances maintained in our records. GPF advances and withdrwals are being processed by us locally and after payment schedules will be submitted to PAO to update in the ledger.
    4. Some of the employees are getting interest added to their GPF accounts to the extent of one, two or three lakh rupees annually.
    5. Is GPF interest added to their account is taxable?
    6. If taxable, is DDO required to add it to salary income or employees themselves can declare & pay tax on it while preparing their own returns.
    7. So far we have not considered it for TDS at DDO level. Kindly elucidate.
    Tuition fee @ Rs. 100- per chiled per month was exempted earlier. Present position may kindly be guided.
    Some of the employees are claiming it in the form of reimbursement of Children’s Education Allowance (CEA) to the extent of Rs. 50,000 or so. How it is to be treated at DDO level?
    We are adding Government’s contribution of 10% in respect of new employees to their Salary income. Allowing deduction of 10% under overall cealing of Rs. 1,50,000- and another 10% under 80 CCD. Is it correct?

    Kindly guide me.


    • Sreekanth Reddy says:

      Dear Shrikant,
      5 – No, it is tax free income.

      Tuition Fee paid up to Rs 1.5 lakh can be claimed u/s 80c.
      Children Education Amount of up to Rs 2250 is provided. For two children Reimbursement can be made up to 49,500/-.

      You may kindly refer to below Links :
      Link – 1
      Link – 2
      Link – 3

      For FY 2018-19,
      Kindly refer to my article regarding 80ccd.

      • Shrikant Bhat says:

        ThanQ very much dear Reddy

        I think CEA of Rs. 49,000- is to be added towards income and then for 80 C exemptions. Kindly clarify.

        10% Govt.Contribution for NPS of the employee – is it be added for salary income? We are adding it. Then giving exemption under 80C as well under 80 CCD. Is it correct?

        Sorry for troubling you.

        • Sreekanth Reddy says:

          Dear Shrikant,
          Yes, CEA is an allowance so it can be claimed as a reimbursement from Gross income and Tuition fee of up to Rs 1.5 lakh is a Tax deduction u/s 80c, both are different..

          Employee contribution to Pension scheme of up to Rs 1.5 lakh can be claimed u/s 80 CCD(1). This deduction is under the overall Rs 1.5 lakh limit under Section 80C.
          Second, up to 10% of the basic salary put into the NPS by the company (employer/govt) on behalf of the employee is deductible without any limit u/s 80CCD(2).

  • sohan says:

    Dear srikhanth sir, how to calculate income tax for partly let out and partly self occupied house in the fy 18-19 ( ay -19-20) . I have already taken home loan from bank and paid interest every month.

  • Herald says:

    Dear Mr. Sreekanth,
    Does this 40000INR have to be entered by employer in form 16 or can I directly enter in ITR 1 while I file my returns. Please clarify. Thanks. Herald.

  • Sreekanth Reddy says:

    Thank you dear Ajay.. Keep visiting !

  • vivek says:

    Hi Sreekanth,

    Can we add 40000/- under medical expenses while filing ITR or do it deduct it from the gross salary. Appreciate your quick response.


  • VISHAL says:


    • Sreekanth Reddy says:

      Dear Vishal,

      Suppose if a person has worked for few days (or) months and his salary was just Rs 40,000 in current financial year, then he/she will be entitled to a deduction equal to salary being the same amount.

      If his salary is less, say Rs 30,000 the deduction shall be restricted to Rs 30,000. If salary exceeds amount of Rs 40,000, the Standard deduction shall be restricted to Rs 40,000.

      • Shankaraiah G says:

        Hi Sreekanth…
        Can we get standard deduction of 40000 if the gross salary is more than 500000. Is there any limit of gross salary for claiming.

        • Sreekanth Reddy says:

          Dear Shankaraiah,
          Yes, you can claim SD of Rs 40k. There is no upper limit as such (for gross salary income).

  • amber says:

    is self employed like tuition earners can take the benefit of this 40000 Rs std deduction benefit?

  • Priya Joshi says:

    Hello. I want to know how standard deduction works while calculating tax for the F.Y.2018-19 where Gross income is Rs.1150000/- and deduction u/s 80C is Rs.150000/- Can you elaborate the same?

    • gurpreet says:

      IF 1150000 IS SALARY INCOME

      1150000 – 40000 (standard deduction) – 150000 (80C) = 960000
      0 – 2.5 (SLAB) = 0
      2.5- 5.0 = 12500
      5.0 – 9.6 = 92000
      TAX 104500 + CESS @ 4% = TOTAL TAX 108680/-


    i am a salaried employee in private firm , can i get medical exemption 25000/- for the ay2018-19

  • Kvnr says:

    Is std deduction of 40000 is available for a person (around 55 yr) who is not employed and also not a pensioner but is a living on savings from PF and other through FD int and mutual fund/share interest etc

    • Sreekanth Reddy says:

      Dear Kvnr ji ..It is not available..

      As long as the income falls under the definition of ‘Salary’, standard deduction can be claimed..

      Income from FDs falls under the head – ‘income from other sources’..
      Gains from shares is ‘Capital Gains’..

  • HARINATH SAH says:

    Hi Sreekanth,

    i need detail about car lease , those employee who is getting conveyance allowance is not eligible for car lease perquisite (FY 17-18) but in this FY(18-19) Central government has given SD-40K (including Medical + Conveyance Allowance) rebate so my question is in this financial year employee can get this perquisite ( Car lease) or not because by default he is getting rebate conveyance allowances
    please share full detail.

    • Sreekanth Reddy says:

      Dear HARINATH,
      I believe this perquisite is still available in FY 2018-19. You may kindly cross-check with a CA.


    Dear Sir,
    I worked for a public sector Oil company and my pension is paid by LIC Delhi with the amount my company deposited with them. When I file ITR my CA shows the pensions (LIC& RPFO) under head ‘salary’. Will I get standard deduction of Rs.40000/-?

  • Sarita says:

    What about those who receive an annuity/pension from LIC Group Superannuation cum Life Assurance Scheme? Will they be eligible for standard deduction? The employer used to make the contribution to the superannuation scheme. Thanks,

    • Dear Sarita,
      As long as the income falls under the definition of ‘Salary’, standard deduction can be claimed..
      Annuity income and pension income falls under the head ‘income from salary’.

      However, family pension falls under the head ‘income from other sources’.

      • Yatin Thaggarse says:

        Is the Varishta Pension Plan, started after 60, also covered for standard deduction in FY 2018-19?

        • Dear Yatin,
          As per the latest clarification by the CBDT, Standard deduction is allowed on pension from former employer.
          But, not very sure on pension being received from schemes like PMBY or PMVVY or APY etc.,

  • Pradeep says:

    Jaitley=Criminal Mind

  • Super Multibaggers says:

    Nice explanation sir.

  • senthil kumar palanisamy says:

    Keep up the great work dedicated to people.

  • suresh kp says:

    Nice article Srikanth. For salaried employees, form-16 should reflect this 40K deduction, hence no specific deductions to be claimed while filing income tax returns.

  • Gaurav Khurana says:

    Thanks for the detailed information. Yes getting saved from the documentation is a great thing. As a person normally spends that much amount and need to get the bills later on

  • dhanesh says:

    all individual can avail standard deduction fy 2018-19 onwards

  • amrita says:

    can pensioners and other persons without salarly but income form other sources filing itr 1 get this deduction or is it only for salaried people?

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