Standard Deduction (SD)

Standard Deduction (SD)

The standard deduction is a flat deduction of Rs. 50,000/- to your “Income taxable under the top salaries” of Section 16(a) of the Income Tax Act deals with the standard deduction

This tax benefit can be claimed irrespective of the actual amount spent on  

  • Transport Allowance 
  • Medical Allowance

What Is The Main Purpose Of Standard Deduction

  • To reduce paperwork and allow deductions in actual expenses SD is needed.
  • In addition, Providing tax relief to middle-class salaried individuals.
  • Standard Deduction equally benefits pensioners.

What Is The Impact Of SD Over Salaried Employees For Tax

  • It helped middle-classes employees in reducing their overall tax liability
  • The overall extra deduction benefit was Rs. 5,800 (Rs. 15,800/- for FY 2019-20). 

Given Down Is The Complete Calculation Of Tax Impact Because Of The Standard Deduction

F.Y. 2019-20 & F.Y. 2020-21 (old regime) F.Y. 2018-19
Gross Salary 9,00,000 9,00,000
Less: HRA exemption 60,000 60,000
Less: LTA exemption 85,000 85,000
Less: Transport Allowance
Less: Medical Allowance
Less:- Other exemption 20,000 20,000
         Net Salary (A) 7,35,000 7,35,000
Less : Standard Deduction(B) 50,000 40,000
    Taxable   salary(C)=(A)-(B) 6,85,000 6,95,000
Income Tax on (C) 49,500 51,500
Add : Cess @ 4% 1980 2060
Total Tax 51,480 53,560
Tax saving compared with FY 18-19 2080

 

Also, read | Exemption of House Rent Allowance (HRA)

What Is The Limit Of SD?

According to it, the amount of SD cannot overtake the salary amount. The maximum amount of deduction will be Rs. 50,000/- or Salary amount whichever is lower.

Is Standard Deduction Applicable For Pensioners Too?

It is equally out there for pension received from your old employer to the extent of ₹50,000 per annum.

Impact Of Standard Deduction On Pensioners

  • SD benefits pensioners the most because they didn’t enjoy any other allowance such as medical or transportation.
  • In addition, the SD will only be allowed if it is taxable for the salaried income.
  • Hence, if it is taxed as another source of income then the benefit of the SD will not be available.

Standard Deduction Impact On Salary Income

Particulars FY 2020-21 (Old Tax Regime) FY 2020-21 (New Tax Regime)
Income from Salary 3,50,000 3,50,000
Less: Standard Deduction 50,000
Taxable Salary 3,00,000 3,50,000

Difference Between Standard Deduction Between FY 2019-20 And FY 2020-21

Standard Deduction on salary for FY 2019-20 Standard Deduction on salary for FY 2020-21
  • First, you can claim an SD of Rs 50,000 for FY 2019-20 as against Rs 40,000 available for the current financial year.
  • Budget 2019 claims to hike this SD by Rs 10,000.
  • However, This can be claimed as a deduction from your total income of Rs 7.75 lakh decreasing it to Rs 6.25 lakh
  • Furthermore, the taxpayer can claim a typical SD of Rs. 40,000* or the amount of pension, which is lesser.
  • Hence, Increased to Rs 50,000 for FY 2019-2020(AY 2020-21) in comparison to the Interim Budget 2019.

FAQs Of Standard Deduction

Did the standard deduction apply to senior citizens also?

Yes, the SD applies to all salaried taxpayers & pensioners irrespective of their age.

What is a standard deduction in income tax?

For FY 2019-20 & FY 2020-21, the limit of the standard deduction is Rs 50,000.

Can I claim the standard deduction even if my income is quite Rs 5,00,000?

The SD is out there regardless of your tax slab. However, the benefit would tend to you if you’ve got salary income. The amount of salary is irrelevant during this case.

Do I want to submit proof to claim standard deduction under Income Tax?

The SD is a flat deduction, which does not require any employee to present any evidence to the employer / IT department.

Can an employee claim the two of them standard deduction & income tax deduction?

Yes, an employee can claim the two of them standard deductions & income tax deductions.

What deductions I can take if I use SD?

Hence, if you take the SD on your 2020 tax return, you can deduct up to $300 for cash donations to the charity you made during the year.

Which section of the Income Tax Act enfolds SD?

Section 16(a) of the Income Tax Act deals with the SD.

Whether the standard deduction is calculated monthly?

The standard deduction is not calculated monthly. However, a flat deduction is allowed for a complete year.

Is SD applicable to employees of Central or State governments?

Yes, the SD is out there to central or state government employees.

Are standard deductions of Rs 50,000 under section 16 applicable to an individual whose only source of income is interest from FDs?

No, SD is only accessible from salary & pension income and not on Income from other sources.

My payslip says that I even have deductions under sections (10) and (17), amounting to INR 87168. What does this mean?

However, this means that you are eligible to claim the same exemption from your salary income in respect of various allowances and perquisites, etc also.

How can I claim a deduction not made by the employer in Form-16?

Hence, You can claim deductions at the time of return filing if an equivalent isn’t accounted for by the employer, provided you’re eligible to say the deduction.

What does the SD include?

Many costs and allowances are deductible, including donations, mortgage interest, student loan interest, some business-related costs, and other medical expenses as well as.

How does the SD affect my tax return?

The SD decreases the amount of income you have to pay taxes on.

Who is not eligible for the SD?

  • A person who was a non-resident foreign or dual-class foreigner during the year. 
  • A person who files a return for less than 12 months due to a change in his annual accounting period.

Can I deduct property taxes if I took the SD?

Hence, If you would like to deduct your land taxes, you want to itemize. Furthermore, you cannot take the quality deduction and deduct your property taxes. For 2019, you’ll deduct up to $10,000 ($5,000 for married filing separately) of combined property, income, and sales taxes.

 

Nikita Dhyani

Nikita Dhyani is a Content Writer at Ionic Digitech. A passionate content writer and has been using her content writing skills to develop various content related to financial and business-related topics. She has done BAJMC (Bachelors in media and mass communication and journalism) from Graphic Era University. Her specialties include - Content creation, Content development, Media managing, Communications skills.

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