Standard Deduction increased from Rs. 40,000 to Rs. 50,000 (Budget 2019)
Finance Minister Sh Piyush Goyal has proposed in Budget 2019 to increase the Standard Deduction limit from Rs. 40,000 to Rs. 50,000 for benefit of Salaried/ Pensioner Individuals or Taxpayers from FY 2019-20/ Ay 2020-21.
For salaried persons, Standard Deduction is being raised from the current Rs. 40,000 to Rs. 50,000. This will provide additional tax benefit of Rs. 4,700 crore to more than 3 crore salary earners and pensioners.
In section 16 of the Income-tax Act, 1961 (hereafter in this Chapter referred to as the Income-tax Act), in clause (ia) [as inserted by section 7 of the Finance Act, 2018], for the words “forty thousand”, the words “fifty thousand” shall be substituted with effect from the 1st day of April, 2020.
Standard Deduction of Rs. 40,000 Introduced for Salaried/ Pensioner Individuals, in Lieu of Exemptions (Budget 2018)
Earlier, the Budget 2018 proposals introduced a relief for Salaried/ Pensioner Individuals by way of Standard Deduction of Rs. 40,000, in lieu of exemptions for transport allowance and medical reimbursements, except in the case of differently abled persons for whom Transport Allowance rates have been enhanced. Further, benefit of exemption for other medical reimbursement in the case of hospitalisation, etc., for all employees have been retained to continue.
Re-introduction of Standard Deduction basically worked as a compensation to salaried persons for withdrawing exemptions for Transport Allowance and Medical Reimbursements, i.e. Standard Deduction of Rs 40,000 from salary income is marginally above the aggregate of the withdrawn exemptions of Rs. 34,200 (i.e. Transport Allowance Rs. 19,200 + Medical Reimbursement Rs. 15,000). Therefore, the net reduction in taxable income was only Rs. 5,800 (Rs. 40,000- Rs. 34,200), subject to burden of 1% additional cess on total salary income. However, re-introduction of Standard deduction significantly benefitted the pensioners and salaried persons not claiming/ eligible for Transport Allowance/ Medical Reimbursements.