The Indian Government’s Move to Reintroduce Standard Deduction in 2018: A Simplified Tax Calculation Process
The Government of India made a significant decision in 2018 to reintroduce the standard deduction, targeting a specific group of individuals. This move aimed to simplify the tax calculation process and reduce paperwork for individuals. Let’s dive deeper into the details of this tax benefit:
What is Standard Deduction and How is it Calculated?
Standard Deduction is a fixed amount that can be deducted from an individual’s taxable income, ultimately reducing their tax liability. This benefit is offered by the Income Tax Department to streamline the tax calculation process and minimize documentation requirements. It is available to all individuals, including salaried employees and pensioners, without the need for any proof of expenses.
Under the old tax regime, the Standard Deduction stands at ₹50,000, while it has been hiked to ₹75,000 in the new regime (announced in budget 2024). However, individuals opting for the new regime must forgo certain exemptions and deductions – such as HRA, LTA, Section 80C, 80D deductions, and interest on housing loans – to avail of this benefit.
New Limits for Standard Deduction and How it Impacts Tax Liability
In the latest budget, the new limit for Standard Deduction has been increased from ₹50,000 to ₹75,000, benefiting individuals like salaried employees and pensioners. This enhancement allows individuals to reduce their taxable income by ₹75,000, thereby decreasing their tax obligation. The Finance Minister estimates that these revisions could potentially help salaried employees save up to ₹17,500 in taxes.
Calculating the Standard Deduction under the New Tax Regime:
Here’s a step-by-step breakdown of how the Standard Deduction is calculated:
1. Compute Gross Total Income (Gross Salary + Other Income)
2. Subtract any deductions you may have claimed
3. Subtract the standard deduction amount of ₹75,000
For instance, let’s consider Mr. X, who has an annual salary of ₹10,00,000 and other income of ₹1,00,000. After claiming deductions of ₹1,25,000 and ₹25,000, let’s calculate his taxable income:
– Gross Total Income: ₹11,00,000
– Total Deductions: ₹1,50,000
– Taxable Income: ₹9,50,000
– Minus Standard Deduction: ₹75,000
– Final Taxable Income: ₹8,75,000
Benefits of Opting for Standard Deduction:
The Standard Deduction offers numerous advantages, including a simplified tax calculation procedure, reduced paperwork, and an increase in take-home pay for salaried employees and pensioners. By eliminating the need for extensive documentation, this tax benefit encourages compliance, reduces the likelihood of errors, and ultimately enhances the taxpayer’s experience.
Eligibility Criteria for Standard Deduction:
Salaried employees, pensioners, and individuals with income from various sources (such as interest and dividends) are eligible to claim the Standard Deduction. This benefit aims to provide relief to individuals by reducing their tax burden and streamlining the tax filing process. #StandardDeduction #IncomeTax #Taxation #TaxBenefits #TaxRelief