The Finance Minister, in Budget 2018, has not brought in the much-expected changes in tax slabs. Nor has he touched Section 80C with regard to raising the limits for the individual taxpayers. However, the salaried class still have something to rejoice about after the budget.He has proposed to reintroduce the ’Standard Deduction’ of Rs 40,000. What is a standard deduction? It is a fixed amount of deduction – in this case, an amount of Rs 40,000 which can be reduced by salaried taxpayers, from their gross salary. ?
Interestingly, the provision of Standard Deduction was earlier available but was abolished in the Finance Act 2005. It is also proposed that this deduction would replace the existing transport allowance of Rs 1600 per month and medical allowance of Rs 15,000 per annum. They are usually deducted from the gross salary and claimed as an exemption. The government has proposed requisite amendments to Section 17(2)(viii) of the Income-tax Act, 1961.Resultantly, if the standard deduction of Rs 40,000 replaces medical allowance of Rs 15,000 and transport allowance of Rs 1600 per month i.e. 19,200 per annum, the effective additional benefit on account of the standard deduction would be an additional income exemption of Rs 5,800Let us understand this with a small example:Particulars Until AY 2018-19From AY 2019-20Gross Salary (in Rs.)5,00, 0005,00,000(-) Transport Allowance19,200Not Applicable(-) Medical Allowance15,000Not Applicable(-) Standard DeductionNot Applicable40,000Net Salary4,65,8004,60,000From the above, you may note that the taxable salary has come down on account of the standard deduction.