Income Tax Query

Standard Deduction from Salary Income

With effect from the assessment year 2019-20 (relevant to the previous year 2018-19), there is a standard deduction available from salary income.


Quantum of deduction: Rs.50000 or the amount of salary, whichever is lower.


Standard Deduction was introduced in lieu of (with a view to replace) the following allowances:

Ø  Transport Allowance granted to employees (other than differently abled persons) to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty was exempt up to Rs.1600 per month which worked out to Rs.19200 per annum. This exemption was withdrawn. However, in case of differently abled persons, the transport allowance exemption of Rs.3200 per month (works out to Rs.38400 per annum) is being continued.

Ø  Any sum paid by the employee in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family up to Rs.15000 per annum was exempt. This was omitted and the exemption was withdrawn.


However, the exemption for the following is still continued:

a.    Value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer

b.    Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family:

Ø  In any hospital maintained by the government or any local authority or any other hospital approved by the government for the purpose of medical treatment of its employees;

Ø  In respect of the prescribed diseases or ailments in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to the prescribed guidelines.


Hence, it can be seen that an amount of Rs.34200 were discontinued from exemption and Rs.40000 is added as standard deduction with subsequent enhancement to Rs.50000.


However, it can be noted that employees who are not in receipt of any transport allowance or medical expense from their employers will get to enjoy the full effect of standard deduction.


In case of pensioners, standard deduction is a welcome news as they are not in receipt of any allowances which can be exempted.


One more advantage of standard deduction is that unlike medical expenditure, no bills are required to be produced.


Increase in cess: The education cess is now being called as the Health and Education cess. Previously, it was 3% of tax payable. With effect from assessment year 2019-20, it stands at 4% of tax payable.


Conclusion: The net tax benefit is not significant. The net amount of additional deduction in the form of standard deduction of Rs.50000 and exemptions withdrawn of Rs.34200 is Rs.5800. Add to it the increase in cess. This is clear from the following example:


Assessee in 5% tax slab

Net new benefit after deducting exemptions withdrawn from standard deduction Rs.


Tax benefit (net new benefit X rate of tax)


Less: increase in cess rate @1% of tax payable Rs.


Net tax impact for assessee in 5% tax rate


It can be seen from the above that the net impact on account of tax outflow is Rs.782 for persons in 5% tax bracket. For persons in 20% and 30% tax bracket, there will not be any net savings and there can be net outflow due to increase in cess.