What is Standard Deduction in India?

By Archana L
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    What is Income Tax?

    Income Tax is a tax that is levied on the income of an individual or entity that varies with their respective income or profits. As per the law, individuals and business houses have to file income tax return to determine whether they owe any taxes or they are eligible for any tax refund. The funds accumulated from Income Tax will be used for several developmental activities by the government.

    What is Standard Deduction in India?

    The Standard Deduction is a deduction allowed as per the Income Tax irrespective of the expenses met or the investment made by the individual. An individual need not disclose any investment proofs or expense bills for this purpose, the Standard Deduction is allowed at a standard rate.

    Standard Deduction Meaning

    Standard Deduction Meaning

    Standard Deduction is a fixed deduction from the salary irrespective of the position held in the organization. Since a fixed amount is deducted from the annual salary, it reduces the taxable income, and hence the tax paid amount will also reduce. A Salaried employee and a pensioner can claim Standard Deduction.

    For this purpose, Salary includes wages, annuity, leave encashment, pension, fees, gratuity, commission, perquisite, the advance of salary, less deductions under Section 10 of the Income Tax Act, like house rent allowance and conveyance allowance.

    In India, Standard Deduction is allowed for income from rent which is classified under the head Income from House Property. A standard deduction at 30% is allowed for Income from rent.

     

    Standard Deductions from Rental Income

    Standard Deductions from Rental Income

    In India, Standard Deduction is allowed for income from rent which is classified under the head Income from House Property. A standard deduction at 30% is allowed for Income from rent.

    Standard Deductions from Rental Income at 30%

    The rental income is classified under the head Income from House Property. An individual earning income from rent is allowed to reduce the municipal and other taxes paid to the local authority before arriving at the Net Annual Value or NAV.

     

    Section 24 Of Income Tax Act

    Section 24 Of Income Tax Act

    Further deductions under Section 24 of the Income Tax Act are also allowed from the NAV, as explained below :

    Gross Annual Value XXX
    (Actual Rent or Expected Rent, whichever is higher)  
    (Less) Municipal and other taxes paid to local authority XXX
    Net Annual Value (NAV) XXX
       
    (Less) Deductions under Section 24  
    (a) Statutory Deductions at 30% of NAV XXX
    (b) Deduction for Interest on loan XXX
    Income Chargeable under head House Property XXX

     

    Exemptions Available To Salaried Employees

    Exemptions Available To Salaried Employees

    Previously the salaried class people were eligible for Standard Deductions. But currently, this provision has been discontinued. As per the existing rules and regulations, there are other tax exemptions available to the Salaried Employees.

    The Salaried Employees can avail entertainment allowance and professional tax as a part of standard deductions under the head Income from Salary. Other than this they are eligible to get exemptions under many categories which are as follows.

     

    • Investment in Public Provident Fund
    • Investment in Equity Mutual Funds
    • Five Year Tax Saving Fixed Deposit
    • Pension Plans
    • Contribution to Employee Provident Fund
    • Life Insurance Policy
    • National Savings Certificate (NSC)
    • Repayment of Education Loan
    • Payment of Medical Insurance Premium

     

     

    Exemptions Under Income Tax Act

    Exemptions Under Income Tax Act

    To promote savings among the salaried class, the government has allowed deductions under individual sections of the Income Tax Act. The savings of the salaried class if invested under any of the instruments which are specified in Section 80C, Section 80CCC and Section 80CCD, then the total invested amount is eligible for a maximum combined deduction of INR 150000 per annum.

    Apart from this, an additional deduction of INR 50000 is available under Section 80CCD has been introduced for investing in National Pension Scheme (NPS). This additional deduction has been introduced through the Finance Act of 2015.

     

    Budget 2018

    Budget 2018

    In the 2018 Budget announcement, the Finance Minister Mr. Arun Jaitley reintroduced the Standard Deduction of Rs 40,000 per annum.

    With its reintroduction, the medical allowance of Rs 15,000 per annum and transport allowance of Rs 1,600 per month (Rs 19,200 per annum), will be replaced by the Standard Deduction and the salaried class will be eligible to get an additional income exemption to the tune of Rs 5,800 per annum on their gross annual salary under the head ‘Salaries'.

    Pension Receiving Tax Payer

    If an individual is receiving the pension from the previous employer, then the same is taxable under the head ‘Salaries'. The reintroduction of Standard Deduction has bought some relief for the pension receivers. As the taxpayer will be eligible to claim a Standard Deduction of Rs 40,000 per annum or the amount of pension, whichever is less.

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