ITR return: Why standard deduction matters for salaried taxpayers?

The standard deduction is available as a flat deduction from the total salary earned by the employee in a particular financial year. It does not depend on the number of jobs changed by the employee

The standard deduction, a provision introduced in the Interim Budget 2019, has become a significant tax-saving tool for salaried individuals in India. This flat deduction of Rs 50,000 from the taxable income under the head ‘Salaries’ aims to provide relief to the middle-class and pensioners, simplify tax filings, and reduce the overall tax burden.

 

Who is eligible to claim a standard deduction?

 

The standard deduction can be claimed by individuals receiving a salary or pension, excluding business owners. However, the standard deduction will not be applicable in the following cases:

 

Married individuals filing separately if their spouse itemises deductions.

 

Taxpayers with dual status or non-resident alien status during a specific fiscal year.

 

Taxpayers filing returns for a period of less than a year.

 

Section 16 of the Income Tax Act provides relief to pensioners by allowing them to claim a deduction of up to Rs 50,000 per annum or the actual amount of the pension, whichever is less.

 

Standard deduction under new tax regime

 

The new tax regime eliminates most common deductions for individuals, such as those under Section 80C, which allows for deductions up to Rs 1.5 lakh for investments in specified assets, or deductions for medical insurance premiums.

 

If someone opts for the new regime, they must forgo these deductions even if they have made the required investments. However, the standard deduction is an exception, as it is available under both the old and new tax regimes. For instance, if you were claiming a Rs 50,000 deduction on your salary under the old system and decide to switch to the new system because it results in lower taxes, you can still claim the standard deduction. This provides a significant advantage, giving the standard deduction a special status.

 

The standard deduction is important for salaried taxpayers as it allows them to reduce their taxable income by a fixed amount without needing to itemise deductions. This simplifies the tax filing process and often results in lower tax liability. For the financial year 2023-24, the standard deduction is Rs 50,000 for individual taxpayers, said Kumarmanglam Vijay, Partner at JSA Advocates and Solicitors.