In the Union (interim) Budget 2019-20, the Finance Minister has proposed to provide Rs 50000 Standard Deduction from salary income to all employees & pensioners.
The Standard Deduction of Rs. 40,000 was made available in Budget 2018 (FY 2018-19 / AY 2019-20). It replaced the transport allowance Rs. 19,200 and medical reimbursement of Rs. 15,000 per annum.
Interestingly, the provision of Standard Deduction was earlier available. However, it was abolished in the Finance Act 2005. So, it has been reintroduced again from FY 2018-19 onwards.
As per the previous Tax rules that were 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 (older version), as shown in the below image. (Related Article : ‘Understanding your Form 16 & other Tax related forms -Form 16A & Form 26AS‘)
With effective from FY 2019-20 (AY 2020-21), a standard deduction of Rs 50,000 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.
What is Standard Deduction? How to claim Rs 50000 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 2019-20 / AY 2020-21.
- An amount of Rs 50,000 which can be reduced by taxpayers receiving salary or pension income, from their gross salary.
- 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 50,000?
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.50,000 or taxable salary, whichever is less.
Thus suppose if a person has worked for few days (or) months and his salary was just Rs 50,000 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 50,000, the deduction shall be restricted to Rs 50,000.
So, ideally your Form-16 will reflect a fixed deduction of up to Rs 50,000 in lieu of Conveyance and Medical allowances w.e.f AY 2020-21.
Who can claim the Standard Deduction of Rs 50,000?
All Salaried employees can claim up to Rs 50,000 as standard deduction. But, can Pensioners also claim this deduction?
The Central Board of Direct Taxes (CBDT) has clarified that the pension received by a taxpayer from his former employer is taxable under the head “Salaries”. So, a taxpayer having income chargeable under the head “Salaries” shall be allowed a deduction of Rs 50,000/- or the amount of salary, whichever is less, for computing his/her taxable income.
I believe that an individual receiving pension under EPS Scheme is also eligible to claim standard deduction, though there are conflicting views on this.
However, Family Pension and Annuity (from life insurance company) is considered as ‘income from other sources’, hence SD won’t be applicable. For family pension standard deduction is Rs 15,000.
No standard deduction is available on annuity you purchase voluntarily from an insurance company
How much Tax can be saved with a Standard deduction of Rs 50,000?
A standard deduction of Rs 50,000 from your salary income can entitle you an additional income exemption of Rs 15,800 (max). Let’s understand this with an example ;
So, Rs 50000 standard deduction can lower your taxable salary income by a maximum of Rs 15,800. Then, what would be the impact on your tax liability? How much you can save in taxes?
This increase of Rs 10,000 will result in tax savings of Rs 3,120 for individuals in the highest tax bracket of 31.2% excluding surcharge.
Continue reading :
- All in one guide to ‘Budget 2019 Proposals related to Personal Finance’
- Budget 2019 – Rs 1.5 lakh Additional Income Tax deduction on affordable home loans | Section 80EE
- Income Tax Deductions List FY 2019-20 | List of important Income Tax Exemptions for AY 2020-21
- Latest TDS Rates FY 2019-20 | TDS Rate Table for AY 2020-21
- Income Tax Exemption Vs Tax Deduction Vs Tax Rebate Vs TDS | Key Differences
- Rs 40,000 Standard Deduction from FY 2018-19 | Does it really benefit the Salaried?
(Post first published on : 06-July-2019)