Salaried persons and pensioners get the benefit of standard deduction in tax calculation. Exemption can be availed directly from the annual taxable income. There is no need to submit any kind of documents for this.
Standard Deduction: Finance Minister Nirmala Sitharaman has made income up to Rs 12 lakh tax free for the upcoming financial year 2025-26 budget. This has given a big relief to the taxpayers. Apart from this, the central government has kept the standard deduction at Rs 75,000 only.
The amount equal to the standard deduction limit is directly reduced from the taxable income of the taxpayer, after which tax has to be paid on the remaining amount.
For example, let’s assume that your annual income is Rs 13 lakh. You choose the new tax regime for calculating tax. In such a case, you will get a direct exemption of Rs 75,000 from your income. Tax will have to be paid on the remaining amount.
If your annual income is Rs 12,75,000, then you will not have to pay tax. Because you will get a standard deduction of Rs 75,000 and the income of Rs 12 lakh will become tax free.
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Who gets the benefit of this
Salaried people and pensioners get the benefit of calculation of standard deduction in tax calculation. Exemption can be availed directly from annual taxable income. There is no need to submit any kind of documents for this. Like for medical reimbursement and transport allowance. This reduces paperwork.
How much is the standard deduction in New Tax Regime and Old Tax Regime
Taxpayers who choose the New Tax Regime can avail the benefit of standard deduction of Rs 75,000. Apart from this, those who choose the Old Tax Regime can avail the benefit of standard deduction of Rs 50,000.
That is, if your annual income is Rs 13 lakh and you choose the Old Tax Regime, then you can avail the benefit of exemption of only up to Rs 50,000.
The provision of standard deduction for salaried employees was there before the year 2005. But later it was discontinued. In its place transport allowance, medical allowance etc. were introduced, but after the demand of the employees, the government re-implemented it in the budget of the year 2018.
