What Is the Standard Deduction in Salary: All You Need To Know

  • Updated on: 25 Jun 2024
  • Published on: 22 Feb 2024
What Is the Standard Deduction in Salary: All You Need To Know

If you are looking to reduce your tax liabilities, you must be aware of what is the standard deduction in salary. Remember, the deductions are proposed based on the way how taxpayers utilise their income. Here’s what you need to know:

  • Section 16 of the Income Tax Act of 1961 provides certain tax-saving measures for salaried individuals, which also includes standard deduction
  • Despite the provision being disregarded for several years, it was re-introduced again in 2018

Here’s a brief overview of this concept and how it works.

What is the Standard Deduction in Income Tax?

Here is a detailed overview of these provisions for salaried employees and pensioners:

  • The Union Government introduced the standard deduction in its current form in the Budget 2018
  • It replaced two deductions- travel allowances and medical deduction
  • Salaried individuals can avail of a standard deduction of up to ₹50,000 under Section 16 of the Income Tax Act of 1961
  • You can’t claim this deduction if you have chosen the new tax regime
  • Under the old tax regime, you can avail of this deduction in addition to common Sections 80C and 80D deductions

What is the Purpose of Standard Deductions?

Here are some of the objectives behind the introduction of this concept:

  • It simplifies the tax filing process due to its minimal paperwork
  • This deduction enables deductions regardless of the expenses
  • It provides tax relief to salaried individuals belonging to the middle class
  • It also offers tax relief to pensioners, who may not have a primary source of income

Who is Eligible to Avail of Standard Deductions?

‘Is standard deduction applicable for pensioners or business owners?’ The answer is simple. While pensioners are eligible to claim this tax deduction, business owners can’t avail of this benefit. Here are a few more cases where you will not be eligible to claim standard deductions:

  • Self-employed individual
  • A salaried or pensioner taxpayer who has opted for the new tax regime
  • A Hindu Undivided Family (HUF) or a business entity

Also Read: What Deductions Are Allowed in the New Tax Regime?

How Does Standard Deduction Reduce Taxable Income?

So, how does the standard deduction work in reducing your taxable income? Check the example given below to understand how standard salary deduction impacts your tax liabilities:

Say X is a salaried individual with an annual income of ₹12 lakhs. Here’s how X’s taxable income will get reduced with standard salary income:

Gross Salary (Annually)₹12 lakhs
Standard Deductions₹50,000
Net Taxable Income₹11.5 lakhs
Total Tax Savings₹15,000

How to Calculate Standard Deduction for Multiple Employers

Are you wondering how to calculate standard deduction in income tax for multiple employers? Here is what you need to keep in mind:

  • The standard deduction doesn’t depend on the number of jobs you changed
  • Instead, you can avail of a flat deduction from your total salary earned in a financial year
  • You can avail of a deduction of ₹50,000 for the cumulative salary earned in different jobs for a specific financial year

Documents Required to Avail of Standard Deductions

You don’t need any supporting documents to claim standard deductions. However, you must have the

following documents to file income tax in general:

  • Bank statements of the assessment year
  • Statements for interest income
  • Tax Deducted at Source (TDS) certificates
  • Investment-related documents
  • Form 26AS and Form 1040

Standard Deductions Under the New Tax Regime 

Check the details about standard deductions in the new tax regime below:

  • Standard deductions for salaried classes were introduced in the Union Budget 2018
  • When the Finance Minister introduced the New Tax Regime in the Union Budget 2020, she offered a choice between concessional rates or major deductions 
  • So, standard deductions were not available to salaried individuals if they opted for the newer tax scheme 
  • However, the Government of India has introduced salaried deductions for salaried taxpayers in the Union Budget 2023

In addition to standard deductions, you can enjoy tax benefits on personal loans, provided that you use them for the following purposes:

  • Home renovation
  • Education
  • Business needs, etc. 

To avail of these benefits, you can get an Online Personal Loan of up to ₹5 lakhs on Fibe at affordable rates with minimal paperwork. Download the Personal Loan App to get funds instantly with an easy application process.

FAQs on Standard Deduction for Salaried Individuals & Pensioners

What is the standard deduction for senior citizens pensioners?

The standard deduction for senior citizen pensioners is ₹50,000 per annum. 

What is the standard deduction for salaried employees?

The standard deduction for salaried individuals is ₹50,000 per annum. 

What is the limit of standard deduction?

The limit of salary deduction for a financial year is ₹50,000.


Our top picks

Can Millennial Stress be Resolved by Financial Wellness?
Finance | 3 mins read
How Organisations Can Measure the Impact of Financial Wellness Programs
Finance | 3 mins read
How Can HR help Overcome Staffing Challenges in the Digital Age?
Corporate | 3 mins read
5 Signs of A Good HR Function
Corporate | 3 mins read