The quick guide to standard deduction benefits

Ever felt overwhelmed by tax jargon or complicated deduction rules? You are not alone. Amidst the maze of tax planning strategies, the standard deduction stands out as a refreshingly straightforward benefit.

This uncomplicated deduction offers something valuable for every salaried individual and pensioner in India.

What is the standard deduction?

It is essentially a flat amount that is subtracted from your gross salary before your tax liability is calculated. It is a hassle-free tax benefit because, unlike other deductions, it does not require any documentation or disclosures.

All salaried individuals are eligible for the standard deduction, regardless of their expenses or financial situation, making it one of the most widely applicable tax benefits.

Key details

Amount:

• Old tax regime- ₹50,000
• New tax regime- ₹75,000

Available in:

It is available in the old and new tax regimes, making it a universal benefit.

No documents needed:

It is automatically applied to your income calculation. It can help you save paperwork and time.

What is the purpose of the standard deduction?

• To cut down on paperwork and permit deductions regardless of the true cost
• To give middle-class salaried people tax relief
• To give pensioners benefits

Who is eligible to claim a standard deduction?

The standard deduction can be claimed by individuals who receive a salary or a pension. This excludes business owners. Here are the cases in which the standard deduction will not be applicable-

• Professionals, entrepreneurs and freelancers are not eligible for this deduction.
• Legal heirs of a deceased pensioner's family pension are taxed under the "Income from Other Sources" heading rather than "Salaries."
• A person cannot claim the standard deduction if their only sources of income are capital gains, rental income, interest or business income.

How does the standard deduction decrease taxable income?

The standard deduction, which applies to the taxable income of salaried employees and pensioners regardless of their earnings, is a flat deduction of Rs. 50,000 under the old tax regime and ₹75,000 under the new one.

For instance, under the new tax regime, if a person's gross annual salary is ₹12,00,000 and the standard deduction on salary is ₹75,000, their taxable income will be ₹11,25,000. This amount is used to calculate the total tax liability for the year and lowers the overall tax burden on the employee.

Final takeaway

The beauty of the standard deduction lies in its simplicity. While ₹50,000 or ₹75,000 might not seem revolutionary at first glance, it’s essentially free money in terms of tax savings. It requires no investments, no documents, and no complicated calculations.

Disclaimer: This article is for information purposes only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.