Standard Deduction


#1

The GOI has allowed a Standard Deduction of Rs. 40000 for all pensioners this year. But I do not find any mention of Standard Deduction in the form ITR1.

How do I solve this problem?


#2

Hi Sankar,

During the Budget 2018, a standard deduction of Rs. 40,000 was provided for salaried individuals. The implementation of this standard deduction will mean that the previously offered annual medical reimbursement of Rs.15,000 and the transport allowance of Rs.19,200 will no longer be available to salaried individuals. However, the benefit is not too significant for individuals as the old deduction (Rs.15,000 + Rs.19,200) amounts to Rs.34,200, and since the current limit is Rs.40,000, there is a difference of just Rs.5,800.

Note that this is from the next assessment year 2019-20. So, when you file taxes next year in 2019, you can claim this deduction.

The tax slab under which an individual falls will determine how much he/she will save through this deduction. For instance, those who fall in the 5% tax slab will be able to save only Rs.290, while those in 20% bracket will be able to save Rs.1,160 and those in the 30% bracket will be able to save Rs.1,740. But, the savings could be nullified for most individuals apart from those who earn an annual income under Rs.5 lakhs because cess has also increased from 3% to 4%. As a result, those who earn more than Rs.5 lakhs will end up paying more after the standard deduction has been taken into consideration.

The individuals who will get the maximum benefit of this deduction are pensioners as they weren’t offered any kind of standard deduction prior to Budget 2018. The tax payable on the whole deduction amount can be saved, but the additional cess on the remaining income will still have to be paid. At the moment, medical bills to the extent of Rs.15,000 could be claimed as reimbursement by employees, and this amount was exempt from tax. Even the transport allowance of Rs.19,200 could be claimed as an exemption.

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Cheers,
BB Expert


#3

That would be implemented from AY 19-20