Is Standard Deduction in new tax regime available? How much standard deduction is available for salaried and pensioners? What will be the impact of this standard deduction on your income tax calculation purpose? We will address all these queries in this article.
In Union Budget 2023, Standard Deduction in New Tax Regime was introduced that will be applicable from FY 2023-24 onwards. According to this Standard Deduction, you get flat deduction of Rs. 50,000 while calculating income tax for FY 2023-24 with new tax regime. You also get this deduction in old tax regime. Note that this standard deduction of Rs. 50,000 is only available to salaried and pensioners in both tax regimes.
- Standard Deduction in New Tax Regime Video
- What Exemptions are allowed in new tax regime?
- How much tax to pay in new tax regime?
- Can we claim standard deduction in new tax regime?
- Is Standard Deduction Applicable in Old Tax Regime?
- Standard Deduction part of Section 80C?
- Is Standard Deduction Applicable for pensioners?
- Standard Deduction Benefits
- Is standard deduction available for businessman?
- Old vs New Tax Regime Which is Better – Video
- Conclusion
Standard Deduction in New Tax Regime Video
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What Exemptions are allowed in new tax regime?
We have already covered Benefits of New Tax Regime in detail.
Below are the exemptions available in New Tax Regime:
Exemptions and Deductions available in New Tax Regime
- Standard Deduction of Rs. 50,000 is available from FY 2023-24 onwards
- Transport allowance can be claimed in case of specially-abled person
- Conveyance allowance for employees received to meet conveyance expenditures
- Compensation received for cost of travel or tour
- Daily Allowance received as compensation for cost of living in some other place compared to regular place of working
- Deduction for employer’s contribution in NPS Account under Section 80CCD(2)
And below are the exemptions not available in New tax regime:
Exemptions and Deductions NOT available in New Tax Regime
- Investments included in Section 80C such as Provident Fund, Public Provident Fund, Life Insurance Premiums, 5 year Fixed Deposits, Equity Linked Saving Savings, etc. are not available in New Tax Regime
- NPS (National Pension Scheme) under Section 80CCD(1B) which allows maximum of Rs. 50,000 deduction is not available in New Tax Regime
- All other Deductions available under Chapter VI A is not available under New Tax Regime
How much tax to pay in new tax regime?
It depends on your income and investments made as to how much income tax you are supposed to pay.
Let’ s take an example, so let’s say your income is Rs. 8 lakh in FY 2023-24 and you do not make any investments.
So below is the income tax based on old and new tax regime using the income tax calculator:
As seen above, with old regime you have to pay Rs. 65,000 income tax and with new regime your tax liability is Rs. 31,200. Note that standard deduction of Rs. 50,000 is automatically applied in this case since we selected salaried option as seen above, which makes taxable income = Rs. 7.5 lakh with both tax regime.
So using above numbers, it’s better you select new tax regime that helps you to pay less tax compared to old tax regime.
You can also download income tax calculator in excel to see slab wise details.
ALSO READ: Old vs New Tax Regime 2023-24 Comparison
Can we claim standard deduction in new tax regime?
Yes we can claim standard deduction of Rs. 50,000 in new tax regime from FY 2023-24 onwards that will be applicable from AY 2024-25.
This standard deduction is applicable to only salaried employees and pensioners. Businessman will not get this deduction while calculating their income tax.
Standard deduction is also available in old tax regime with other deductions options to save income tax.
By this standard deduction benefit, you’ll get Rs. 52,500 tax benefit if income is Rs. 15.5 lakh based on the income tax calculations below:
| New Tax Regime | FY 2022-24 | FY 2023-24 |
|---|---|---|
| Income | Rs. 15,50,000 | Rs. 15,50,000 |
| Standard Deduction | Rs. 0 | Rs. 50,000 |
| Taxable Income | Rs. 15,50,000 | Rs. 15,00,000 |
| Income Tax without Cess of 4% | Rs. 2,02,500 | Rs. 1,50,000 |
| Tax Benefit with Standard Deduction | Rs. 0 | Rs. 52,500 |
Is Standard Deduction Applicable in Old Tax Regime?
Yes Standard Deduction is applicable in Old tax regime right from when it was introduced in Budget 2020. Transport Allowance and medical reimbursement has been replaced by standard deduction of Rs. 50,000.
From FY 2023-24, Standard Deduction will be applicable in both old tax regime and new tax regime.
Standard Deduction part of Section 80C?
No, Standard Deduction is not a part of Section 80C Deductions. You get flat deduction of Rs. 50,000 separately apart from Rs. 1.5 lakh limit under Section 80C investment options.
Is Standard Deduction Applicable for pensioners?
Yes Standard Deduction is applicable for pensioners who get monthly pension. The deduction is Rs. 50,000 which needs to be subtracted from yearly pension before calculating income tax for pensioners.
Standard Deduction Benefits
Standard deduction of Rs. 50,000 helps you to save income tax with both old and new regime.
Let’s take an example of income = 10 lakh in FY 2023-24. If you are businessman, below is the income tax:
| Businessman | Old Tax Regime | New Tax Regime |
|---|---|---|
| Income | Rs. 10,00,000 | Rs. 10,00,000 |
| Standard Deduction | Rs. 0 | Rs. 0 |
| Income Tax | Rs. 1,17,000 | Rs. 62,400 |
Now let us see the income tax calculation for salaried employees and pensioners with same income and standard deduction of Rs. 50,000
| Salaried / Pensioner | Old Tax Regime | New Tax Regime |
|---|---|---|
| Income | Rs. 10,00,000 | Rs. 10,00,000 |
| Standard Deduction | Rs. 50,000 | Rs. 50,000 |
| Income Tax | Rs. 1,06,600 | Rs. 54,600 |
So as seen above, you save Rs. 10,400 with old tax regime and Rs. 7,800 with new tax regime, just be applying standard deduction of Rs. 50,000. This is the main benefit of this standard deduction available for salaried and pensioners in both old and new tax regime.
With Old Tax Regime, you get more deduction and exemption options as well.
ALSO READ: How to Save Income Tax on Salary above 5 lakh
Is standard deduction available for businessman?
No, standard deduction is not available for Businessman in any tax regime.
Old vs New Tax Regime Which is Better – Video
Conclusion
So applying standard deduction of Rs. 50,000 becomes very important to save income tax if you are salaried employee or pensioner. This will help you to reduce your tax liability with old and new tax regime.
As mentioned in Budget 2023, with introduction of standard deduction new new tax regime, you get Rs. 52,500 benefit if your income is Rs. 15.5 lakh or more based on the calculations.
Some more Reading:
- Senior Citizen Income Tax Calculation
- Change between New to Old Regime or vice versa
- New Tax Regime Benefits
- How to calculate income tax on salary
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