Standard Deduction In New Tax Regime: All You Need To Know
Standard deduction meaning: Most employees and pensioners in India demand higher "standard deduction" when it comes to income tax-related announcements in the budget. This concept, reintroduced in India in around half a decade ago, significantly impacts the taxable income of individuals. It is also a rather straightforward tool that simplifies tax calculations.
Standard Deduction Meaning
The standard deduction simplifies the process of determining taxable income for salaried individuals and pensioners. It is a fixed amount subtracted from the gross salary in lieu of the expenses which an employee would typically incur in relation to their employment. This reduces the taxable income and, consequently, the overall tax liability. This deduction negates the need for employees to submit various proofs to claim deductions for transport allowance and medical expenses.
In India, the standard deduction was abolished in 2005. Previously, salaried employees were able to claim a flat deduction from their salary income of either Rs 30,000 or 40 per cent of their salary (if their salary did not exceed Rs 5 lakh), or a deduction of Rs 20,000 (if their salary exceeded Rs 5 lakh).
Initially, Indian salaried employees were required to provide evidence to claim deductions for specific allowances. However, with the reintroduction of the standard deduction in the 2018-19 budget, this requirement was eliminated. The move aimed to provide relief to employees and pensioners, replacing the previous allowances with a more streamlined approach.
For the financial year 2023-24, the standard deduction is set at Rs 50,000 for salaried individuals and pensioners. For family pensioners, it is Rs 15,000 or 1/3rd of the family pension, whichever is lower. This amount is directly subtracted from the gross income, thus reducing the taxable income and easing the tax burden.
The Benefits Of Standard Deduction
The primary advantage of the standard deduction lies in its simplicity and the elimination of the need for proof of expenditure. It is automatically applied to the income, facilitating a smoother process for individuals filing their income tax returns. This not only saves time but also ensures a uniform deduction for all eligible taxpayers, making the tax system more equitable.
