What is Standard Deduction in India?

The Finance Minister of India proposed a standard deduction of 40,000 rupees to the salaried employees. The introduction of standard deduction would mean that the medical allowances and travel allowances that were available to the employees earlier, won't be offered anymore. However, the salaried employees will still benefit out of standard deduction since the medical reimbursement and travel allowances together added up to 34,200 but the total standard deduction offered to the salaried individuals is 40,000.

The total savings through the standard deduction depends on the income slab that the individual/employee falls in. People falling under the 5% income tax slab will save 290 rupees, individuals belonging to the 20% bracket will save 1,160 rupees and the employees who fall under 30% tax bracket will be saving 1,740 rupees.

But, for people earning an annual income of less than five lakhs, the benefits of standard deduction will be nullified since the cess has also increased from 3% to 4%. So, people earning more than five lakhs per annum will end up paying more after standard deduction is implemented.

The pensioners will avail the maximum benefit of standard deduction since they were not being offered any form of standard deduction prior to the Union Budget 2018. The pensioners can save the tax payable on the whole amount of deduction, but the cess is still required to be paid. Employees can claim medical reimbursement up to 15,000 for the exemption from taxes. Also, the transport allowance of 19,200 can be claimed as a tax exemption.