Standard Deduction increased from Rs. 40,000 to Rs. 50,000

Standard Deduction limit has been increased, by the Finance Act, 2019, from Rs. 40,000 to Rs. 50,000, for benefit of Salaried/ Pensioner Individuals or Taxpayers from FY 2019-20/ AY 2020-21 and onwards, as proposed by the Finance Minister Sh. Piyush Goyal in Budget 2019.

For the purpose, Section 16 of the Income Tax Act, 1961 has been amended vide Section 3 of the Finance Act 2019, as under:

“In section 16 of the Income-tax Act, 1961 (hereafter in this Chapter referred to as the Income-tax Act), in clause (ia) [as inserted by section 7 of the Finance Act, 2018], for the words “forty thousand”, the words “fifty thousand” shall be substituted with effect from 01/04/2020.”

Enhanced/ Reintroduced Standard Deduction basically works as a compensation to salaried persons for withdrawing exemptions for Transport Allowance and Medical Reimbursements, i.e. Standard Deduction of Rs 50,000 from salary income is substantially above the aggregate of the withdrawn exemptions of Rs. 34,200 (i.e. Transport Allowance Rs. 19,200 + Medical Reimbursement Rs. 15,000).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 goes upto Rs. 15,800 (Rs. 50,000- Rs. 34,200), subject to burden of 1% additional cess on total salary income. Enhanced/ reintroduced Standard deduction can even be more beneficial for the pensioners and salaried persons who are not claiming/ eligible for Transport Allowance/ Medical Reimbursements, i.e. those who have not sacrificed anything for claiming such deduction of Rs. 50,000 (the amount of net reduction in taxable salary).

Standard Deduction of Rs. 40,000 Re-introduced by Finance Act 2018 (in Lieu of Exemptions)

Earlier, the Finance Act 2018 has introduced Standard Deduction of Rs. 40,000, in lieu of exemptions for transport allowance and medical reimbursements, as a relief for Salaried/ Pensioner Individuals, except in the case of differently abled persons for whom Transport Allowance rates have been enhanced. Further, benefit of exemption for other medical reimbursement in the case of hospitalization, etc., for all employees have been retained to continue.

For the purpose Section 16 of the Income Tax Act, 1961 has been amended vide Section 7 of the Finance Act 2018, applicable from FY 2018-19/ AY 2019-20, as under:

“In section 16 of the Income-tax Act, after clause (i) [as omitted by section 6 of the Finance Act, 2005], the following clause shall be inserted with effect from 01/04/2019, namely:–

(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less;”

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