Standard Deduction

Standard deduction is a type of deduction provided by the Income Tax Act that allows a person to lower the tax to be paid by subtracting a particular amount of sum from his total gross salary.

Earlier, the provision of standard deduction was only available under the old tax regime. However, the Union Budget 2023-24 has introduced standard deduction in the new tax regime as well.

Thanks to this, every taxpayer, regardless of the tax regime he has chosen, will be eligible to claim a standard deduction of ₹50,000 on his gross salary or pension.

According to Section 16 of the Income Tax Act, 1961, a person receiving a pension or salary is eligible to claim a standard deduction of up to ₹50,000 when filing his income tax return.

The best part of claiming a standard deduction on salary and pension is that the taxpayer does not have to show any proof to reduce the taxable income.

Let us understand this with a standard deduction example. Suppose your annual salary/pension amounts up to ₹5,25,000. At the time of filing the ITR, you will have to enter your gross salary in the ITR and enter ₹50,000 in the standard deduction column.

By doing so, your taxable income will be ₹4,75,000, and your tax will be calculated, considering the tax slab of ₹3,00,001-₹5,00,000.

As per the Income-tax slab, you will only have to pay income tax at a rate of 5% instead of 10%. This will save you around ₹28,750, as earlier you would be paying ₹52,500 (10% on ₹5,25,000), and now you will have to pay ₹23,750 (5% of ₹4,75,000).

No additional documents are required for claiming standard deduction. But, there are some important documents and forms that you need to have when filing your income tax return. Here is a list of those documents:

• Duly filled Form 26AS and AIS.

• Account statements for the relevant financial year

• TDS certificates

• Documents related to your investments

• Income statements from fixed deposits or interest

Buying health insurance is another way of enjoying tax deductions. As per section 80D of the Income Tax Act, an individual holding a health insurance policy is entitled to get tax deductions of up to ₹25,000.

Moreover, plans like pre-existing disease health insurance not only provide tax benefits but also provide coverage for existing diseases, which otherwise can cause a significant financial burden.

So, if you want to reduce your tax liabilities and get extra security against health emergencies, choose Tata AIG medical insurance plans.
With our health insurance plans, you will be eligible for ample tax benefits and coverage for medical expenses.

The standard deduction for senior citizens and salaried individuals is the best chance for a person to get financial relief without getting entangled in paperwork. It also allows low and middle-salaried individuals and pensioners to mitigate their tax burden legally.

However, the standard deduction in the new and old tax regime is not alone in the race of providing tax deductions to taxpayers.

There are a multitude of health insurance plans that offer tax benefits (deductions) along with keeping the taxpayer financially protected from mishaps that often result in huge financial losses.