The deductions in the Income Tax Law give taxpayers a reason to smile because they help reduce tax
liability. One of those fun provisions for salaried people in IT law is the "standard deduction."
As its name implies, a standard
deduction allows you to deduct a certain amount from your gross wages so that
your total taxable income is reduced. The most important point to note is that
the standard deduction feature is not available to those who opt for the new
tax system, which comes with lower tax rates than previous deductions.
Download and Prepare at a time 50 Employees Form 16 Part B for theF.Y.2021-22
The standard deduction provision
was made in the 2018 budget (through the withdrawal of tax benefits on Medicare
allowance and transport available thereafter) that those with wage income are
eligible for a deduction of Rs 40,000 or gross salary, whichever is less. The
limit was increased to Rs 50,000 in the subsequent budget. For example, a
taxpayer named "X" has an annual gross salary of Rs 5 lakh a year.
The standard deduction available in this case is Rs 50,000 (less than the
standard deduction limit of Rs 50,000 and a salary of Rs 5 lakh).
Suppose X only worked for one month
in the fiscal year and earned approximately Rs 42,000 as salary income. For
that year, the qualified standard deduction will be Rs 42,000 per application
of the provision.
Download and Prepare at a time 50 Employees Form 16 Part A&B for the F.Y.2021-22
What happens if the employee
changes jobs within a tax year? The standard deduction is not based on the
number of jobs changed by the employee.
“Gross salary here includes all
salary components and covers the taxable portion of allowances and benefits
paid by the employer
By extending the benefit of the
standard deduction for pensioners, the TI law allows pensioners to also claim
this deduction. Please note that the pension here does not include the family
pension, which is awarded to dependent family members, after the death of the
employee; the family pension is charged to income tax from other sources.
Discount, no discount
A deduction is different from a
reduction, which is a type of partial refund of the tax to be paid. It is
allowed to claim income tax deductions from the income, while it is allowed to
claim deductions from the tax payable.
Download and Prepare at a time 100 Employees Form 16 Part B for theF.Y.2021-22
Section 87A of the Income Tax Act
gives a deduction to those who have an income of not more than Rs 5 lakh (after
allowing deductions) to reduce their tax liability.
The deduction is 100% of the tax
liability or Rs 12,500, whichever is less.
How is the standard deduction
calculated for multiple employers?
The standard deduction is not
available without basis. from employers The standard deduction is the general
limit for a full year rather than not. of employers
Let's assume that Mr. A worked for
2 employers during the 2019-2020 tax year. In this case, you may be suspicious
of how much standard deduction Mr. A can claim.
Option 1 Rs. 50000
Option 2 Rs. 1,00,000 (Rs.50,000
per employer)
The correct answer is option 1, ie
Mr. A can avail of the standard discount up to Rs. 50,000/-
Download and Prepare at a time 100 Employees Form 16 Part A&B for the
F.Y.2021-22
Frequent questions
Q- Is the standard deduction also
available for the elderly?
Yes, the standard deduction is
available to all taxpayers and retirees, regardless of age.
Q- Can the employee claim both the
standard deduction and the income tax deduction?
Yes, the employee can claim both
standard deductions and income tax deductions.
Q- What article of the Income Tax
Law covers the standard deduction?
Section 16(ia) of the Income Tax
Law deals with the standard deduction.
Q- Is the standard discount
available for freelancers in
Self-employed workers do not earn
income from wages. They have a business income. Therefore, self-employed
individuals cannot claim the standard deduction because the standard deduction
is only available from earned income.
Q: Does the standard deduction of
Rs 50,000 under Section 16 apply to a person whose only source of income is FD
interest?
No, the standard deduction is only available from salary and pension income and not from income from other sources.
