Income Tax: Importance Of Standard Deduction For Salaried Taxpayers

There are several benefits and deductions that are available under the Income Tax Act, but as the new tax regime becomes increasingly popular many of these will no longer exist. At such times, the relevance and the importance of some of these deductions becomes evident. Standard deduction is a benefit that is available for the salaried class and this is a means for them to ensure that they are able to reduce the tax burden. At this stage, it is important to take a closer look at standard deduction and what this actually means for the salaried individual.

The first detail about the standard deduction is that it is not possible for everyone to take its benefit. This means that the benefit is restricted to certain category of taxpayers. If one does not fall into that category, then this cannot be utilised. Normally, the salaried class is at a disadvantage when it comes to tax details because they cannot take the benefit of several deductions available to business people and professionals. However, when it comes to standard deduction, it is only the salaried who can make use of the benefit and no one else. This makes it essential for someone to have income from salaries if they want to use this deduction.

The other point with respect to standard deduction is that this is a flat amount that is available as a deduction once you qualify for it. This figure is Rs 50,000 and it is equal for everyone. This means that anyone who takes the benefit cannot claim more than Rs 50,000 as the deduction. This would lead to a situation where someone who has a high salary running into lakhs will get the same flat amount as a deduction, as compared to someone who has a smaller amount coming in as salary. The importance of the amount of the deduction could thus vary, depending on the amount of income that a person earns.

The new tax regime calls for the elimination of most deductions that are commonly available for individuals. For example, something like Section 80C, where there is a deduction for investment into specified assets up to Rs 1.5 lakh, or even deduction for payment of medical insurance premium is not available under the new tax regime. If a person shifts to the new regime, then they would have to forego these deductions and they cannot utilise it, even if they have made the necessary investments. The difference with standard deduction is that this is available under the old tax regime as well as the new tax regime. If you were taking a Rs 50,000 deduction on your salary under the old system and you decide to shift to the new system because the tax impact here is lower, then you would still be able to claim the deduction under standard deduction. This is a big benefit because it gives standard deduction a special status.

The key point to watch with respect to standard deduction is the amount that is allowed under this head. There was a period of time when the standard deduction was abolished, but then it was brought back. In the future, if the figure is increased, then this is a benefit for the salaried class because a larger amount of their income will be deducted before the calculation of taxes. While the final saving in taxes might not seem much, every small bit helps in reducing the tax burden.

Arnav Pandya is founder Moneyeduschool.

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