Standard deduction from salary income
Standard deduction from salary income w.e.f FY 2018-19 (AY 2019-20) onward is available under Income Tax Act of India. Here we have analysed the Standard deduction under Salary with Examples.
Commentary on Standard deduction from salary income
Standard deduction on salary income [Section 16]
Section 16, inter-alia, provides for certain deductions in computing income chargeable under the head “Salaries”. Section 16(ia) has been inserted with effect from assessment year 2019-20 to allow a standard deduction of lower of
(a) Rs 40,000 or
(b) the amount of salary.
The standard deduction :
|(a)||is absolute and unconditional;|
|(b)||does not require any supporting evidence;|
|(c)||is available to all assessees drawing salary income including retired employees drawing pension income;|
|(d)||is allowable against all form of salary income, including gratuity, perquisites, profits-in-lieu of salary, etc.|
|(e)||is same for all assessees with the ceiling of Rs.40,000 irrespective of the salary drawn.|
Relevant Portion of Section 16 of Income Tax Act for Standard deduction from salary income
The income chargeable under the head “Salaries” shall be computed after making the following deductions, namely
Following clause (ia) shall be inserted after clause (i) of section 16 by the Finance Act, 2018, w.e.f. 1-4-2019
|(ia)||a deduction of forty thousand rupees or the amount of the salary, whichever is less|
Govt Clarification for Standard deduction from Pension income
The Central Board of Direct Taxes (CBDT) has clarified that the pension received by a taxpayer from his former employer is taxable under the head “Salaries”. The Finance Act, 2018 has amended Section 16 of the Income–tax Act, 1961(“the Act”) to provide that a taxpayer having income chargeable under the head “Salaries” shall be allowed a deduction of Rs 40,000/- or the amount of salary, whichever is less, for computing his taxable income. Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs 40,000/- or the amount of pension, whichever is less, under Section 16 of the Act. [ Refer Press Release Dated 05.04.2018 :Clarification regarding applicability of standard deduction to pension received from the former employer ]
No standard deduction from family pension
Whether Rs 40,000 allowed as standard deduction for employees and pensioners also applicable for family pensioners?
A deduction of Rs 40,000 would be allowable against the income which is taxable under the head “Salaries”. The family pension is normally received after the death of an employee. Deduction of Rs 40,000 would not be allowable in respect of family pension of such a nature as such income is taxable under the head “Income from other sources”
I retired from a non-government limited company in March 2018. I will get payments of
Pension of Rs 23,328 from EPFO under Employees Pension Scheme 1995 in the financial year 2018-19.
Whether I am entitled to get a Standard Deduction of Rs 40,000 or any other amount? Please clarify.
Pension received by a person from a recognised provident fund is not taxable provided an employee has served for a period of 10 years in service and pension has been received after completing 58 years of age. Therefore, in case you comply with these requirements, pension received by you would not be taxable.
Standard Deduction of Rs 40,000 would be allowable against the salary income. In case above amounts or any other amount received by you is taxable under the head “Income from salary”, a deduction to the extent of Rs 40,000 would be allowable.