Standard Deduction Explained for Salaried Employees

The standard deduction is a flat amount that reduces taxable salary income for all salaried individuals, regardless of actual expenses incurred. Introduced in 2018 to replace the older transport allowance and medical reimbursement exemptions, it simplifies tax filing significantly. ## Current Standard Deduction Amount The standard deduction for salaried employees is Rs 75,000 for FY 2024-25. Finance Minister Nirmala Sitharaman announced its introduction at Rs 40,000 in Budget 2018, progressively increasing it through subsequent budgets to the current Rs 75,000. This flat deduction applies to all employees receiving salary income, whether in government, public sector, or private sector. There are no conditions attached — no bills, receipts, or supporting documentation required. Simply receiving a salary income automatically qualifies you for this deduction. ## Transport and Medical Allowances Replacement Before the standard deduction was introduced, salaried employees received Rs 1,600 per month (Rs 19,200 annually) as transport allowance exempt from tax, plus medical reimbursement of Rs 15,000 annually. These exemptions required submitting bills for actual expenses. The standard deduction subsumed both these exemptions, providing Rs 40,000 initially, then Rs 50,000, then Rs 55,000, and now Rs 75,000. The additional amount over the old combined exemption (Rs 34,200 annually) represents the government's effort to provide tax relief without increasing complexity. ## Interaction with New Tax Regime The standard deduction is fully available in both the old and new tax regimes. In the new regime with its lower tax slabs, the standard deduction of Rs 75,000 effectively increases the zero-tax threshold. A salaried employee with Rs 9 lakh gross income in the new regime pays tax only on Rs 8,25,000 after the Rs 75,000 standard deduction. For those in the old regime with multiple exemptions like HRA, 80C, 80D, and 80CCD, the standard deduction adds to the total deductions available. The Rs 75,000 reduces the tax base before applying the tax slabs, saving Rs 7,500- Rs 23,625 depending on the income bracket. ## Planning Implications Since the standard deduction requires no documentation, it should be claimed automatically through the Form 16 provided by your employer. The deduction is reflected in Part B of Form 16, which summarizes your salary income and deductions. For those who change jobs mid-year, each employer deducts tax without knowing the other's salary payment. In such cases, claiming the full standard deduction from each employer may technically over-claim deductions. However, filing a consolidated ITR with total income correctly reported resolves any discrepancy at the time of annual tax filing.