Introduction:

The Income Tax Act not only stipulates taxation on citizens’ income but also presents numerous avenues for claiming deductions and rebates, which are contingent upon how taxpayers allocate their earnings. 

One such deduction available to individual salaried employees is the standard deductions. It is important to note that salaried individuals and pensioners can pay a certain amount under the standard deductions by default, without requiring any investment or expenditure. This provision was discontinued for several years but was reinstated during the Budget announcement in 2018.

Standard Deduction:

The standarddeductions is the tax-free portion of income, designed to reduce taxable income. These deductions are subtracted from gross income and are treated as an  exemption. Currently set at Rs. 50,000, all salaried employees are eligible to claim this deduction, effectively reducing their taxable income.

Objectives of Standard Deduction:

• The primary objectives for including a standarddeductions are as follows:
• Simplifying tax benefits for pensioners.
• Provide targeted tax relief specifically for middle-class salaried individuals.
• Extend benefits to pensioners by utilizing the standard deduction.

Benefits of Standard Deduction:

• Standarddeductions help reduce the tax burden on taxpayers, especially low-income earners, as fixed income represents a large portion of their gross income
• Claiming the standard deduction is straightforward since it doesn’t necessitate any documentation or proof of expenses, unlike deductions such as medical bills or travel expenses.
• The standarddeduction is universally available to all taxpayers, regardless of income or expenses, making it a universally useful option.
• The standarddeduction streamlines the tax calculation process, particularly for individuals with lower incomes who may not have numerous expenses to claim as deductions.

Eligible to Claim a StandardDeduction:

Individuals receiving salary or pension, excluding business owners, are eligible to claim the standard salary deduction. In other words, any individual earning income under the salary category can claim a standard deduction of up to Rs 50,000.

Not Eligible to Claim a StandardDeduction:

• Self-employed individuals are ineligible to claim the standarddeduction. Furthermore, the following individuals are also not eligible for claiming the standarddeduction:
• You
• When a married person files separately, both the individual and their spouse can benefit from the deduction.
• A taxpayer filing a return for a partial year.
• A taxpayer with dual status is subject to both categories of taxation.

Standard Deduction -New Tax regime:

• In the Budget of 2020, a new tax regime was introduced, offering taxpayers the choice to pay concessional tax rates. However, this new regime restricts major deductions and exemptions.
• The 2023 budget was amended and the new regime also allowed a fixed deduction of Rs 50,000. As a result, you can now claim a deduction of Rs 50,000 under both the new and old regime.
• The standarddeduction is a fixed deduction applied to the total salary earned by an employee within a specific financial year. It is not influenced by the number of job changes made by the employee. Consequently, a single fixed deduction is applicable to the cumulative salary earned from all employers. For the fiscal year 2023-24, the standard deduction remains unchanged from the previous year at Rs. 50,000.

Standard Deduction for Pensioners:

• In a recent clarification issued by the Income Tax Department, it has been stated that if a taxpayer receives a pension from a former employer, it is taxable under the category of ‘Income from Salaries’.
• Therefore, the taxpayer can claim a deduction of Rs. 50,000 or the amount of pension received, whichever is less.

Documents Required:

• No supporting documents are required to claim the standarddeduction for salary income. However, when filing income tax returns, you will need to furnish the following documents and complete the necessary forms:
• Income statements
• TDS certificates.
• Form 26AS
• Interest or fixed deposits.

Misconceptions about Standard Deduction:

• The standarddeduction is a fixed amount accessible to all taxpayers, irrespective of any expenses incurred. Consequently, it cannot be claimed for specific expenses, unlike itemized deductions.
• Only salaried employees and retirees can deduct the standarddeduction. This does not apply to individuals who earn income from other sources, such as income from employment or rental housing.
• While the standarddeduction is a universal benefit available to all taxpayers, the amount may vary among different classes of taxpayers. Seniors and retirees, for example, qualify for significantly lower deductions compared to salaried workers.
• Many taxpayers believe that the deduction is the sole deduction available when calculating tax liability. However, there are numerous other deductions and exemptions, including medical expenses, house rent allowance, education expenses, and charitable donations.

Conclusion:

In conclusion, the standarddeduction is a crucial component of income tax, offering substantial benefits to taxpayers, particularly those with lower incomes. It streamlines tax calculations, lowers tax liability, and is accessible to all taxpayers. Therefore, it’s imperative to comprehend and utilize the standard deduction when filing income tax returns.