How Should Startups Adjust Salary Components After Tax Exemption Changes?

Dear All,

Just a query, now that medical and conveyance are removed from exemption from Income Tax, can we keep standard deduction as one of the salary components? If not, then what components need to be added in place of medical and conveyance? Currently, we have the following components: Basic, HRA, Medical, Conveyance, and Special Allowances. We are a startup, so we don't want to complicate the salary structure.

Kindly help. Thank you in advance.

Dear Friend,

Standard deductions allowed were 40,000 in FY 18-19, and there are no proofs or bills to be submitted to claim this standard deduction, which includes medical and conveyance allowances. Now, this limit has been increased to 50,000 for FY 19-20.

You may continue to include medical allowance and conveyance allowance as part of the salary structure. Whatever amount of medical and conveyance allowance is provided, it will be added to the 'Salaries' category and will be taxable in the hands of the employee. A standard deduction of ₹40,000 (for the assessment year 2019-2020) or ₹50,000 (for the assessment year 2020-2021) will be subtracted from the gross salary.

You cannot create a salary category for 'Standard Deduction' in the salary structure. The standard deduction is solely for the purpose of calculating Income Tax.

Dear Sir/Madam,

When an employee leaves in the middle of a financial year (say in June in FY 2019-20), can the standard deduction amount of Rs 50,000/- be fully considered for computing the income taxes payable on the 3 months' (Apr, May & Jun) salary? Please advise.

Thank you in advance.