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Standard-deduction-on-Income-from-Salary

 

Standard deduction on Income from Salary/Pension

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Introduction-
Standard deduction of Rs. 40,000 has introduced in budget 2018 applicable w.e.f. 01.04.2018 In Budget 2019, has increased the limit to Rs. 50,000 for the F.Y. 2019-20, as compared to previous F.Y. 2018-19 it was Rs. 40,000 to all employees against their income taxable under the head of income from salary (including pensions) but disallowed the following deductions i.e.in budget 2018-
  1. Transport allowance of Rs. 19,200 per annum.
  2. Medical Reimbursement of Rs. 15,000 per annum.
 
See the related post : Highlights Interim Budget 2019
 
Tax benefit after introducing standard deduction-

There is a little benefit of standard deduction say Rs. 5,800 (i.e. 40,000 - 34,200) against your salary income.

If any person getting pension from previous employers etc., which is taxable under the head “Income from Salary” can claim standard deduction of Rs. 40,000 Rs. 50,000 for the F.Y. 2019-20, as compared to previous F.Y. 2018-19 it was Rs. 40,000 during the year.
 

With the help of the following illustration, you can understand the tax benefit-

Example-

Mr. X, aged about 35 years, living in Chandigarh at rented house, having the following details of income and investments-

Particulars

Amount (Rs.)

Basic Salary

6,00,000

Dearness Allowance

2,40,000

House Rent Allowance

90,000

Children Education Allowance

2,400

Special Allowance

12,400

Medical Allowance

15,000

Transport Allowance

19,200

Rent Paid

10,000

What will be the amount of Income tax benefit after allowing standard deduction for the F.Y. 2018-19 & F.Y. 2019-20?

 

Answer-

Income Tax benefit after introducing standard deduction-

Particulars

Amount(Rs.)

Amount(Rs.)

Amount(Rs.)

Amount(Rs.)

 

F.Y. 2019-20

F.Y. 2018-19

F.Y. 2017-18

Basic Salary

 

6,00,000

6,00,000

6,00,000

Dearness allowance

 

2,40,000

2,40,000

2,40,000

House Rent Allowance

Less: HRA Exempted

(Least of the following-)

 

Actual Rent paid or

Rent paid – 10% of Salary* or

40% of Salary*

*(Salary means Basic Salary)

90,000

60,000 = 30,000 Taxable

 

1,20,000 or

1,20,000 – 60,000 = 60,000 or

24,000

30,000

30,000

30,000

Children Education Allowance

Rs. 100 per month, per child exempted= 100*2*12=2400

0

0

0

Special Allowance

 

12,400

12,400

12,400

Medical Allowance

Non Taxable

15,000

15,000

-

Transport Allowance

Non Taxable

19,200

19,200

-

Gross Total Income

 

9,16,600

9,16,600

8,82,400

Less: Standard Deduction w.e.f. 01.04.2018

 

-50,000

-40,000

0

Net Taxable Income

 

8,66,600

8,76,600

8,82,400

Income Tax as per Tax Slabs-

Up to Rs. 2,50,000 = Nil

2,50,001 to 5,00,000= 5%

5,00,001 to 10,00,000= 20%

 

85,820

87,820

88,980

Benefit of Tax Amount as compared to previous year

 

2,000

1,160

 

However, Education Cess & Higher Education cess @ 4% will be levied to all assesses whether claiming standard deduction or not. 

 



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