A Standard Deduction is basically a deduction allowed in Income Tax irrespective of the expense incurred or the investment made by the Individual.

No Disclosures/ Investment Proofs/ Expense Bills are required for this type of Income Tax Standard Deduction as it is allowed at a standard rate.

In India, there are 2 types of Standard Deductions as explained below

  1. Standard Deduction from Rent: Standard Deduction @ 30% is allowed for Income from Rent.
  2. Standard Deduction from Salary: Standard Deduction of Rs. 50,000 is allowed from Salary Income

Standard Deduction from Rental Income @ 30%

The Rental Income is classified under head Income from House Property. A person earning Rental Income is first allowed to reduce the Municipal and other taxes paid to the Local Authority to arrive at the Net Annual Value.

Further deductions under Section 24 are also allowed from the Net Annual Value. This has been explained below

Gross Annual Value (i.e. Actual Rent or Expected Rent, whichever is higher)xxx
(Less)Municipal and other taxes paid to Local Authority(xxx)
(=)Net Annual Value (NAV) xxx
(Less)Deductions under Section 24
1. Statutory Deduction @ 30% of NAV(xxx)
2. Deduction for Interest on Loan(xxx)
(=)Income chargeable under head House Property xxx

The Standard Deduction applicable for rental income is irrespective of the actual expenses incurred on the property. Any expense like maintainence etc done for keeping the property in healthy condition is covered under this Standard Deduction. Proof of actual expenses incurred is not required to be maintained.

If a person is receiving rent from multiple properties, this standard deduction of 30% would be allowed to be claimed from all properties.

It is pertinent to note here that this Standard Deduction is only allowed from Rent received by renting of an apartment/building and not from Rent received from renting of vacant land.

Standard Deduction from Salary

The standard deduction from Salary of Rs. 50,000 was introduced in Budget 2019 and is applicable for Financial Year 2019-20 onwards.

This deduction is allowed irrespective of the actual expense incurred by the employee. The employee is also not required to submit any bills/proofs to the employer for claiming this deduction.

This deduction has been introduced in lieu of Transport Allowance and Medical Reimbursement which were earlier allowed to employees and the employees were required to submit bills as proofs for claiming these benefits. The deduction for Transport Allowance and Medical Reimbursement has now been removed and Standard Deduction introduced in its place.

This is a cumulative deduction and if you have received salary from 2 employers during the year, the max standard deduction allowed would remain the same i.e. Rs. 50,000 (in aggregate). Irrespective of whether you have received the salary income from a big company or from a small proprietorship – the standard deduction would be allowed to be claimed.

Other Deductions Allowed in Income Tax

Apart from the above mentioned Standard Deduction @ 30%, there are several other deductions allowed as well. Some of these Deductions are only available to Salaried Employees whereas the rest of the deductions are available to everyone including the Salaried Employees.

Deductions which are only limited to Salaried Employees are Deduction for Entertainment Allowance and Deduction for Professional Tax. Apart from these Deductions, there are several exemptions as well which are available to salaried employees.

Other Deductions which are available to everyone include Deduction for Investment in PPF, Equity Mutual Funds, Life Insurance, Repayment of Education Loan, Payment of Medical Insurance Premium, Deduction for Contribution to NPS Account etc.

These Deductions have been briefly explained here – 11 Income Tax Deductions which can help you reduce your Tax Burden.

The govt encourages the taxpayers to make use of the above mentioned deductions to plan their taxes in advance which will help them reduce their tax burden.