Standard Deduction of Rs. 40,000 for Salaried Individuals in Lieu of Exemptions (Budget 2018)

Standard Deduction of Rs. 40,000 for Salaried/ Pensioner Individuals, in Lieu of Exemptions (Budget 2018)

While presenting Budget 2018-19, the Finance Minister Mr Arun Jaitley has proposed a relief for Salaried/ Pensioner Individuals by way of Standard Deduction of Rs. 40,000, in lieu of exemptions for transport allowance and medical reimbursements, except in the case of differently abled persons for whom Transport Allowance rates have been enhanced. This relief measure is likely to benefit about 2.5 crore salaried/ individuals. However, income tax rates have remained unchanged for individuals, in view of the many positive changes made by the Govt. in the personal income-tax rate in the last three years.

It may be noted that benefit of exemption for other medical reimbursement in the case of hospitalisation, etc., for all employees shall continue.

Impact of Standard Deduction on Take Home Salary

Re-introduction of Standard Deduction is basically a compensation to salaried persons for withdrawing exemptions for Transport Allowance and Medical Reimbursements, i.e. proposed Standard Deduction of Rs 40,000 from salary income is marginally above the aggregate of the withdrawn exemptions of Rs. 34,200 (i.e. Transport Allowance Rs. 19,200 + Medical Reimbursement Rs. 15,000). Therefore, the net reduction in taxable income will be only 5,800 (Rs. 40,000- Rs. 34,200), subject to burden of 1% additional cess on total salary income.

However, Standard deduction shall significantly benefit the pensioners and salaried persons not claiming/ eligible for Transport Allowance/ Medical Reimbursements.

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