Before we understand the new provision of 'standard deduction' available to pensioners which will help reduce their tax liability. We need to re-state here that pension income is taxable for pensioners under the head 'salaries', so as per the amendment notified in the Budget 2018 which now again provides the earlier standard deduction benefit to salaried class individuals, shall also be available to pensioners in India.
Again on April 5, CBDT clarified that the benefit of standard deduction shall also be available to taxpayer category whose earning source is pension income. "Any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs 40,000, or the amount of pension, whichever is less, under Section 16 of the Act," CBDT said
What is Standard deduction?
Standard deduction is a deduction allowed as per the provision of the Income tax Act at a standard rate from the taxpayer's salary income. The deduction is available irrespective of the expenses incurred or investments made or position of the employee in an organization. The deduction is aimed at making up for the expenses an employee meets out during his employment.
Also it is to be noted that the withdrawn exemption in respect of travel allowance shall still be available to physically challenged individual at an enhanced rate.
The provision of standard deduction benefit has been reinstated in lieu of previous exemptions available in respect of travel allowance and medical reimbursements up to a maximum of Rs. 40,000 per year. Until last budget, taxpayer was allowed to claim a maximum of Rs. 1600 per month and Rs. 1,250 per month for travel and medical reimbursements respectively. This sums upto Rs. Rs. 34,200 on an annual basis.
How standard deduction of Rs. 40,000 will benefit the pensioner?
As against the earlier allowed annual deduction in respect of medical and travel expenses, the annual deduction through the restored standard deduction clause now stands increased by Rs. 5800 on a yearly basis (Rs. 40000- 34,200). So for the person in the highest tax bracket, it will mean a saving of Rs. 1,810 in taxes.
The benefit means even more for pensioners as they were not getting medical reimbursements or travel allowance.
But here is a catch that needs your attention that only pensioners recieving pension on their own can claim the standard deduction of upto Rs. 40,000. As if experts are to go by the family pension received in case of death of the pensioner by the dependent family member is taxed under the head income from other sources and is allowed a deduction of Rs. 15,000 or 1/3rd of the uncommuted pension received, whichever is less.
Also, it is to be noted that unlike in the previous instance when supporting documents were required to claim medical or travel allowance, the standard deduction benefit does away with any such requirement.
Remember, the provision of standard deduction is applicable from FY 2018-19 and so when income tax returns for the year will be filed, pensioners will be able to claim the allowed deduction.