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What is the Standard Deduction in Income Tax?

The standard deduction is beneficial for both the employers and salaried employees. For the employers, it would result in less administrative efforts in the processing of transport and medical bills. For the salaried employees, it would result in lower taxable salary income.

The standard deduction replaced transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000. The provision for standard deduction was available earlier. However, it was abolished in the Finance Act 2005

Under the Union Budget 2018, the government had proposed amendments to Section 17(2)(viii) of the Income-tax Act, 1961. The net effect of the standard deduction for the salaried taxpayers would be an additional income exemption of Rs 5800.

Earlier the standard deduction was available with few limitations. The following are the details of the standard deduction prior to Budget 2018:

Salaried Employees EarningStandard Deduction Allowed
Annual income from Rs. 75,000 to Rs 5 lakhRs 30000 or 40% of the income, whichever is lower.
Annual income greater than Rs 5 lakhsRs 20000

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Standard Deduction for Salaried Individuals

The standard deduction has replaced the travel allowance and medical reimbursement. This gives the salaried taxpayers an exemption from their taxable income without any restrictions. The increase in limit from Rs 40,000 to Rs 50,000 will help taxpayers lower their taxable income in one go.

Let’s see how it affects the taxable income before and after the standard deduction:

ParticularsFY 2017-18 AY 2018-19FY 2018-19AY 2019-20From FY 2019-20From AY 2020-21
Gross Salary (in Rs.)6,00,0006,00,0006,00,000
(-) Transport Allowance19,200Not ApplicableNot Applicable
(-) Medical Allowance15,000Not ApplicableNot Applicable
(-) Standard DeductionNot Applicable40,00050,000
Net Taxable Salary5,65,8005,60,0005,50,000

Over the 3 financial years the taxable salary before giving effect to further deductions, the net taxable salary has decreased.

Learn What is Salary Slip?

Standard Deduction for taxpayers receiving pension

A clarification was issued by the CBDT clarifying the applicability of standard deduction on pensioners. In the clarification, CBDT mentioned that pension received by a taxpayer from an ex-employer is taxable under the head of ‘Salaries’. Since the pension is taxable as a part of salary income the taxpayer will be entitled to standard deduction under section 16.

  • For FY 2018-19, the claim will be Rs 40000 or pension amount whichever is lower
  • For FY 2019-20 and onwards, the claim will be Rs 40000 or pension amount whichever is lower
  • For FY 2023-24 and onwards, the claim is applicable in the new tax regime as well.

You can refer to the clarification dated 5th April 2018 here

How to calculate standard deduction with example?

Let us understand the effect of standard deduction with an example:

ParticularsFY 2017-18 
AY 2018-19
FY 2018-19
AY 2019-20
From FY 2019-20
From AY 2020-21
Basic Salary + Dearness Allowance700000700000700000
Conveyance Allowance (non-taxable)19200
Medical Reimbursement (non-taxable)15000
Other Taxable Allowance100000134200134200
Gross Salary800000834200834200
Standard Deduction4000050000
Total Income794200784200
Other Deductions100000100000100000
Income Chargeable to Tax700000694200684200
Income Tax525005134049340
Total Income tax Saving11603160

How to claim the standard deduction?

You can claim a standard deduction while filing your income tax return. Usually, your employer will take your standard deduction into account while calculating your tax payable. This tax payable will help your employer in deducting your TDS

The last date of filing an income tax return is 31st July of the next year. However, this due date might change and the IT department will always notify the revised due date. 

Is standard deduction part of Section 80C?

No, the standard deduction is not a part of section 80C. Both the standard deduction and section 80C cater to different rules and regulations serving different purposes.

A standard deduction is a deduction against medical and travel expenses. While deduction under section 80C allows a deduction for specific investments and expenses. To know more about section 80C

Learn How to File TDS Return?

Frequently Asked Questions

Can I claim transport allowance and medical allowance as well along with standard deduction?

No, you can claim the only standard deduction. In fact, the standard deduction is a replacement of transport allowance and medical allowance. Hence, you can claim an only standard deduction from FY 2018-19

Can I claim a deduction of 50,000 for previous returns also?

No, the standard deduction of Rs 50000 is applicable for the financial year 2019-20 and succeeding financial years. A taxpayer cannot revise his filed income tax return and claim the deduction. Even in case he/she has not yet filed his ITR, he does not have an option to claim the standard deduction.

What is the standard deduction for 2018-2019?

For the financial year 2018-2019, the standard deduction limit was Rs 40000. However, this limit is not revised to Rs 50000 for the financial year 2019-2020.

Is standard deduction applicable to pensioners?

A standard deduction is available to pensioners as well.

Can I claim standard deduction along with Section 80C deductions?

Yes, you can claim standard deduction along with deduction under section 80C. In fact, there is no restriction or relationship between these deductions. Both are mutually exclusive of each other and have no reference to each other.

Are Bills Required to Claim Standard Deduction?

Earlier, to claim a deduction you had to submit medical and travel bills. These bills were then reviewed by your employer and deduction was allowed. However, to claim a standard deduction you need not submit any bills. You will receive the deduction by default without any conditions of submitting bills.

Is standard deduction applicable to new tax regime?

Yes, the standard deduction is available to salaried taxpayers in the new tax regime from FY 2023-24.

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