Standard Deduction under the Old and New Tax Regimes for Salaried Individuals

It is necessary to have legitimate documentation proving the actual investment or expense was incurred in order to claim any tax deduction. What if, however, you were able to claim a single tax deduction without providing evidence of an investment? Standard deduction is what we are discussing. All salaried people are eligible for this flat deduction even if they have no proof of investment.

What Is Standard Deduction?

The standard deduction is a fixed amount that taxpayers can subtract from their taxable income, reducing the amount of income subject to taxation. It simplifies the tax filing process by allowing individuals to reduce their taxable income without needing to itemize specific expenses like medical bills, mortgage interest, or charitable donations.

Governments use the standard deduction to make the tax system more accessible and fair, especially for those without significant itemized deductions. The amount of the deduction typically varies depending on your filing status—whether you’re single, married filing jointly, head of household, or a senior citizen. Some tax systems also adjust the standard deduction annually to account for inflation.

For determining income under head salary, salaried workers can take use of the standard deduction, which is a fixed deduction. Only salaried individuals and retirees are eligible for this deduction under Section 16(ia) of the Income Tax Act. They are allowed to deduct up to Rs75,000 from their salary income under the current tax system and Rs50,000 under the previous one.

Under the new tax regime, the standard deduction ceiling for retirees is Rs25,000, while under the previous tax regime, it was Rs15,000. You don’t need any kind of proof of investment or evidence because it’s a flat deduction. This deduction is provided to offset costs that are not eligible for deductions under any other provisions of the Income Tax Act.

Section 16 of the Income Tax Act of 1961 established the standard deduction for the first time in 1974. But beginning with the Assessment Year 2006–07, it was eliminated.

However, the Indian government reinstated the usual deduction of Rs40,000 for medical and transportation expenses in the 2018 Budget. This cap was raised to Rs50,000 in the 2019 Budget.

Prior to Budget 2023, only taxpayers from the previous system were subject to the standard. It has now been expanded to include taxpayers under the new tax regime, though. Therefore, both new and old regime taxpayers are eligible to receive the standard deduction benefits for the fiscal year 2023–2024.

The basic deduction ceiling for taxpayers under the new tax regime has now been raised to Rs75,000 in accordance with the most recent statement in Budget 2024. The restrictions for taxpayers under the previous tax scheme are still Rs50,000.

 Why Is the Standard Deduction Important?

1. Simplifies Tax Filing: It eliminates the need to gather extensive financial documents for itemized deductions.
2. Provides Tax Savings: By reducing taxable income, it lowers the overall tax bill for most individuals.
3. Ensures Fairness: Offers relief to taxpayers, especially those with moderate incomes who may not have many itemized deductions.

 Who Can Claim the Standard Deduction?

Most taxpayers qualify for the standard deduction, but there are exceptions. For instance, non-resident aliens, certain dual-status taxpayers, or individuals filing returns for less than a full year may not be eligible.

How Standard Deduction Works with Example

The standard deduction is a fixed amount that reduces your taxable income, making it easier for taxpayers to file without itemizing expenses. It’s designed to simplify the tax process and provide relief by automatically lowering the income on which you’re taxed.

 How Does It Work?

When filing taxes, you have two choices:

1. Standard Deduction – A set deduction amount based on your filing status.
2. Itemized Deductions – Listing eligible expenses (like mortgage interest, medical expenses, and charitable donations).

Most people opt for the standard deduction because it’s straightforward and often higher unless they have significant deductible expenses.

 Example of Standard Deduction

Let’s break it down with a simple example:

John’s Scenario:

• Annual Income: $50,000
• Filing Status: Single
  Standard Deduction (for singles, assume $13,850)

Instead of itemizing expenses, John chooses the standard deduction.

Taxable Income Calculation :

$50,000 (Income) – $13,850 (Standard Deduction) = $36,150 Taxable Income

By using the standard allowance, John reduces his taxable income, which lowers the amount of taxes he owes.

 Key Takeaways

• The standard deduction varies based on filing status (single, married filing jointly, head of household, etc.).
•  It’s automatically available unless you choose to itemize deductions.
• Higher standard deductions are available for seniors and those who are blind.

Using the standard allowance is ideal for individuals without substantial deductible expenses. Always compare both methods to ensure you’re maximizing your tax savings.

As previously mentioned, only salaried workers and pensioners are eligible for the standard deduction. To determine the individual’s net salary income, it is deducted from their gross salary income or pension income.

You can take additional deductions under Sections 80C, 80D, 80G, and so forth after determining your net wage or pension income.

To further understand how it operates, let’s look at an example:

Let’s say you make Rs8 lakh a year. Therefore, after the usual deduction from gross pay income, your net salary income in this scenario will be Rs7.25 lakh.

Your net salary income will be subtracted from your net taxable income if you have invested, say, Rs1.5 lakh under section 80C. Your net taxable income will be Rs5.75 lakh after all deductions, and you will be required to pay tax on this sum in accordance with your income tax bracket.

Eligibility Criteria for Income Tax Standard Deduction

The Income Tax standard allowance  is a fixed reduction in taxable income, designed to simplify the duty computation process for taxpayers. It allows individualities to reduce their taxable income without the need to give detailed attestation of charges. still, to mileage of this benefit, certain eligibility criteria must be met. Below is a comprehensive companion outlining who qualifies for the standard allowance under the income duty laws.

1. Salaried workers and Pensioners

Salaried individualities:

•  All salaried workers, whether in the public or private sector, are eligible for the standard allowance.
•  It replaces before deductions like transport allowance and medical payment, making the process hassle-free.
• The deduction is automatically applied when calculating taxable payment income.

Pensioners:

• Pensioners entering a pension from their former employer are also eligible.
• The pension is treated as payment income, allowing retirees to profit from the deduction.

2. quantum of Standard Deduction 

• For the current fiscal time, the standard deduction quantum is
• ₹ 50,000 for salaried individualities and pensioners.
• If the payment or pension is lower than ₹ 50,000, the deduction will be equal to the total income quantum.

3. Eligibility for New vs. Old Tax Regime

Old Tax Regime:

• Standard deduction is available under the old duty governance.
• Taxpayers can claim colorful immunity and deductions alongside the standard allowance.

 New Tax Regime: 

• originally, the new duty governance didn’t offer the standard deduction.
• still, recent emendations have included the standard allowance benefit, enhancing the new governance’s attractiveness.

 4. Criteria for Employers and Pension outlaying Banks 

•  Employers are responsible for factoring in the standard deduction when abating duty at source( TDS) from workers’ hires.
• Pension outlaying banks apply the standard allowance automatically when calculating TDS on pensions.

 5. Important Points to Flash back 

• No Attestation needed :Taxpayers don’t need to submit bills or expenditure attestations to claim the deduction.

• Automatically Applied: The deduction is automatically considered when filing income duty returns or when TDS is subtracted by employers.
• collective Exclusivity: Salaried individualities can not claim both the standard allowance and allowances it has replaced( like transport allowance), as they’re now combined under this deduction.

Only those who receive a salary or pension are eligible for the standard allowance. Therefore, self-employed people and business owners are not eligible for this deduction.

Other situations in which you are unable to claim the standard deduction include the following:

• If your spouse itemizes deductions on your income tax returns, you should file separate income tax returns.
• if you were a non-resident alien or had dual status during a specific fiscal year.
• if the return is being filed for a period shorter than a year.

Regular Salary Deduction Standard

Taxpayers who get monthly salary income are eligible to claim a deduction of Rs 75,000 under standard deductions. This lowers taxable income, which eventually saves money on taxes.

For instance, if you are in a higher tax rate, the standard allowance of Rs 75,000 can result in a sizable tax savings. For example, if you are in the highest tax rate (30%), you can save up to Rs 23,400.

Additionally, this standard allowance qualifies for flat deductions, which simplifies the tax compliance process by eliminating the need for bills or other supporting evidence.

Standard Deduction Amount (For Reference, See Example)

Salaried people in many nations, including India, get a standard deduction that changes every year. For example, the Indian government replaced previous tax exemptions such as medical and transportation allowances with the standard allowance in the 2018 budget.

₹50,000 is the standard allowance for salaried individuals and pensioners in FY 2023–2024 (India).

Benefits of Claiming the Standard Deduction

• Reduces Tax Burden: Automatically lowers taxable income.
• Easy Compliance: No paperwork or expense tracking needed.
• Encourages Savings: More take-home salary after tax adjustments.

The Distinction Between Itemized and Standard Deductions

Senior Citizen Standard Deduction

Senior citizens 60 years of age or above are eligible for the standard allowance, just like salaried individuals. If they receive a salary, they can deduct Rs 75,000 from their gross income to calculate their taxable income. It seeks to give them a simple means of lowering their tax obligation.

Any pension funds obtained from a former employer are considered salary income. Therefore, retirees can further lower their taxable income and tax outflow by claiming a standard deduction of Rs 25,000.

FAQs

Which section does the standard deduction fall under?
The Income Tax Act’s Section 16(ia) governs standard deductions. According to this provision, you can deduct the salary amount or a standard deduction of Rs. 50,000, whichever is less. This cap is Rs 75,000 for taxpayers under the new tax scheme.

How can I take a standard deduction of $50,000?
The standard deduction is deducted from your gross pay. To determine your net salary income, you can reduce a standard amount of Rs 50,000 from your gross pay income.

What is the standard income tax deduction?
You can claim a standard deduction of Rs 50,000 under the previous tax regime and Rs 75,000 under the current one, according to the Income Tax Rules.

Under the new tax system, are we able to claim a standard deduction?
Yes, you are eligible to receive a basic deduction of up to Rs 75,000 under the new tax structure.

Is it possible for me to take two standard deductions?
No, you are only permitted to deduct the standard allowance from your pay once.