The concept of standard deduction on salary is a crucial aspect of income tax calculations for salaried individuals. Introduced as a means to simplify tax filing and provide relief to employees, standard deduction allows salaried individuals to reduce their taxable income by a fixed amount, thus lowering their overall tax liability.
Here, we will delve into what standard deduction entails, how it operates, its advantages and the recent changes in Indian Tax Laws related to this deduction according to the Union Budget 2024.
The standard deduction is a flat amount deducted from taxable salary income, allowing taxpayers to reduce their taxable income without submitting any proof or disclosures.
Finance Minister Nirmala Sitharaman announced an increase in the standard deduction for salaried individuals from ₹50,000 to ₹75,000 in Budget 2024, offering further relief to salaried individuals.
The standard deduction simplifies the process of claiming deductions for salaried employees.
Before its reintroduction in 2018, employees could claim specific allowances such as transport allowance and medical reimbursement, but this required documentation and was subject to limits. The standard deduction replaced these allowances, offering a more straightforward way to reduce taxable income.
For instance, if an individual has a gross annual salary of ₹10,00,000 and the standard deduction on salary in the new tax regime is ₹75,000, their taxable income will be ₹9,25,000. The tax payable will then be calculated based on this reduced amount, which lowers the overall tax burden on the employee.
The standard deduction offers several key benefits:
By providing a fixed deduction amount, the standard deduction eliminates the need for employees to maintain records and submit proofs for various expenses. This simplification reduces the complexity of tax filing.
The standard deduction on salary directly reduces the taxable income, which can result in significant tax savings. This benefit is particularly helpful for individuals in higher tax brackets, where even a small reduction in taxable income can lead to substantial tax savings.
Unlike other deductions that may be tied to specific expenses or conditions, the standard deduction is available to all salaried individuals, making it a widely applicable tax benefit.
This aims to provide additional financial relief to pensioners by extending benefits through the standard deduction. This measure recognises the contributions and needs of pensioners and seeks to alleviate some of the financial burdens they may face.
The standard deduction on salary is a vital tax benefit for salaried individuals, reducing taxable income and simplifying tax filing. Its fixed amount and wide applicability offer significant relief, easing tax compliance.
As a key part of the Indian tax system, understanding this deduction helps in making informed financial decisions and optimising tax planning.