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. This deduction in deed replace the 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.
Let us understand this with a small example:
Particulars Until AY 2018-19 From AY 2019-20
Gross Salary (in Rs.) 5,00, 000 5,00,000
(-) Transport Allowance 19,200 Not Applicable
(-) Medical Allowance 15,000 Not Applicable
(-) Standard Deduction Not Applicable 40,000
Net Gross Salary (before other deductions-Chap.VI/savings u/s.80 C, D, DD etc.:
From the above, you may note that the taxable salary has come down on account of the standard deduction.
8th December 2018 From India, Bangalore