In this post, we will talk about the newly introduced deduction of Rs. 40,000 in terms of standard deduction in India union budget 2018.
Finance Minister Arun Jaitley in Budget 2018 proposed to provide a standard deduction in India of Rs.40,000 for the salaried class. However, he also proposed to take away the existing deductions of transport allowance Rs. 19,200 and Rs. 15,000 medical reimbursement.
Let us understand this with an example:
|Particulars||Until Fy 2017-18 (AY 2018-19)||From Fy 2018-19(AY 2019-20)|
|(-)Transport Allowance||19,200||Not Applicable|
|(-)Medical Allowance||15,000||Not applicable|
|(-)Standard Deduction||Not Applicable||40,000|
However, pensioners will benefit substantially as earlier they did not get any standard deduction or any of the other allowances. They would save tax payable on this entire amount of deduction but have to pay the increased cess on the balance income. If a taxpayer has received the pension from the former employer, it is taxable under the head ‘Salaries’.
What is a Standard Deduction?
The standard deduction is essentially a fixed amount deducted from the salary income, from their gross salary before calculation of taxable income. Also, there is no proof necessary for claiming a standard deduction.
Impact of Standard Deduction on your Income Tax
- As standard deduction is introduced instead of transport allowance and medical reimbursement, the net increase in deduction will be maximum of Rs. 5,800.
- In the meantime, it will help the salaried class in 30% tax bracket to save Rs. 1,800 in terms of income tax payout.
- Also, increase in cess from 3% to 4% for individual taxpayers takes away some benefits from the introduction of the standard deduction.
This ends our post. Let us know your opinion by commenting below.