Anything which saves Tax is welcome… isn’t it? Standard Deduction is one such deduction and we never think of it. Do you know before 2018, it went missing for few years and again came back in 2018? Why is standard deduction given then? What is the current standard deduction limit and who can avail standard deduction?

Let’s learn these things today.

What is Standard Deduction?

Standard deduction is a limit of amount which can be deducted from gross earnings. This means your net income will come down and tax will be calculated on this reduced income. Hence standard deduction reduces tax out go.

Standard Deduction forms Section 16 of the Income Tax Act 1961.

The standard deduction was reintroduced in 2018. This was the year when Old Tax Regime & New Tax Regime was also introduced.

Standard deduction of up to Rs 50000 is available in place of medical allowance & transport allowance for person who wish to remain in old tax regime.

Hence tax assessee choosing new tax regime do not get the benefit of the standard deduction.

Few points to Understand Standard Deduction

Standard Deduction is available to individual salaried or pension-earning tax payers. It is not available to business owners, Self-employed taxpayers, professionals, HUFs or Companies.

Even if you change multiple jobs during the year, the limit remains same. Currently, it is Rs 50000.

In case one earns Rs 30000 in a 2 months and does not work for remaining year, the standard deduction would be Rs 30000 & not Rs 50000 or pro rata as per month. It is calculated on whole year basis and not monthly.

Not only salaried can avail this benefit but pensioners also can claim this deduction.

Standard Deduction is a deduction (means it is deducted from gross earnings) not a rebate (claims reduced from tax payable).

There is no proof required to claim Standard Deduction.

Why Standard Deduction is allowed?

The logic behind standard deduction is inflation and weariness experienced by human body while earning money.

Efforts to earn same amount of money go up due to things getting dearer and human body failing gradually.

Businesses using the same logic charge depreciation to all assets which lose life and need replacement. Salaried also use lot of resources to earn which are not directly compensated. Hence standard deduction helps them is decreasing tax payment and use the saving to fund these invisible expenses.

During covid, not only things got dearer & salaried people had to pay for equipment, furniture, broadband etc to keep up their jobs. So it was reintroduced to aid all of these expenses.

Section 16 or the Standard Deduction allows substantial savings on your tax outgo. It is a great help for a salaried individuals. Knowing the rules will help you save tax amount to pay.