By adding a standard deduction of ₹50,000 and a deduction from family pensions up to ₹15,000 under the new tax regime, which was previously exclusively available to salaried persons under the old tax regime, the Finance Minister has given relief to individual taxpayers.
By adding a standard deduction of ₹50,000 and a deduction from family pensions up to ₹15,000 under the new tax regime, which was previously exclusively available to salaried persons under the old tax regime, the Finance Minister has given relief to individual taxpayers. The Budget 2023 also widens tax benefits for those who earn a salary, with each salaried person earning ₹15.5 lakh or more standing to gain ₹52,500. The Income Tax Act of 1961, Section 16(ia), allows every salaried taxpayer to seek a maximum deduction of up to Rs. 50,000. Furthermore, such a standard deduction would be available to taxpayers who receive pension income. For salaried individuals for the current financial year, i.e., FY 2022-23, here’s how they can calculate standard deductions based on an exclusive interview with different industry experts.
Section 16(ia) of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’) provides that every salaried taxpayer could claim a flat deduction of upto Rs. 50,000. Further, even taxpayers deriving pension income would be eligible to claim such standard deduction. The quantum of such deduction would be restricted to lower of the salary/ pension amount or Rs. 50,000.
It is pertinent to note that such standard deduction was allowed as a deduction only to those taxpayers opting for old tax regime. However, the Budget 2023 has now proposed to allow such standard deduction for taxpayers opting for the proposed new tax regime u/s 115BAC of the IT Act in Financial Year 2023-24.
An illustrative example for claiming of such standard deduction is provided below:
| Particulars | Taxpayer receiving Salary | Taxpayer receiving Pension |
| Gross Salary/ Pension | 10,00,000 | 7,50,000 |
| Less: Allowances exempt u/s 10 | ||
| House Rent Allowance | (1,20,000) | – |
| Leave Travel Allowance | (80,000) | – |
| Net Salary | 8,00,000 | 7,50,000 |
| Less: Deductions u/s 16 | ||
| Standard Deduction u/s 16(ia) | (50,000) | (50,000) |
| Professional Tax u/s 16(iii) | (2,500) | – |
| Income Taxable under the ‘Salary’ Head | 7,47,500 | 7,00,000 |
Every taxpayer, while furnishing his tax return in ITR 1/ ITR 2 can claim the benefit of standard deduction. The quantum of standard deduction is auto-populated in the Income tax online return/ utility once the amount of gross salary/ pension is rightly entered by the taxpayers. However, the taxpayers should confirm whether the said deduction is rightly computed from Point iv (a) Standard deduction u/s 16(ia) of Part B – Gross Total Income schedule.
In India, pension is an essential source of income for retired individuals, but it comes with tax liabilities. The taxes on pension are calculated under the standard deduction in income tax. The standard deduction is calculated based on various factors like basic salary, convenience, alliance, rent allowance, and other non-taxable and taxable charges.
Taxpayers receiving pension can be divided into two categories – senior citizens and super senior citizens, where they can opt for old or new tax regime under appropriate categories, and they have different tax slabs. Senior citizens are those who are below the age of 80, while super senior citizens are above 80. The basic exemption limit for senior citizens is Rs. 3 lakhs, while super senior citizens do not have to pay any taxes for filing returns up to Rs. 5 lakhs annually on total income.
Since, senior citizens receiving pension from their previous employers are liable to taxes under the head ‘salaries’, let’s take an example to understand this- a 70-year-old family member receiving a pension of Rs. 50,000 will be categorised as a senior citizen and is subject pay Rs. 30,000 (5% on second slab + 20% of third slab with no tax till 3 lakhs). Whereas, a family member above 80 years and receiving a pension of Rs. 50,000 will be categorised as a super senior citizen and pay only Rs. 20,000 (20% of second slab with no tax till 5 lakhs).
Under Section 16 of the IT Act, pensioners are entitled to claim a deduction of Rs. 50,000 per annum or the amount of pension, whichever is less. This deduction has helped in easing the financial burden on senior citizens. Also exploring options like NPS, PF, FDs, and other insurances can even maximise tax savings. Even though the tax liabilities on pensions in India are significant, taxpayers can mitigate them by understanding the standard deduction, tax slabs, deductions, and re-investments under the IT Act. Therefore, we emphasise the importance of planning retirement finances well in advance to ensure a comfortable retirement.
Standard deduction upto a maximum of ₹50k is available on both salary income and pension income. It’s automatically applied if amounts are entered under income from salary head or under pension income.
Filers on ClearTax will see, these amounts are auto applied and deduction is claimed upto 50k.
Moreover, FY 23-24 and 24-25 will be same except FY 24-25 will now also have standard deduction under the new regime. Earlier it was only under the old regime.
Source: https://www.livemint.com/money/personal-finance/how-salaried-employees-can-calculate-standard-deductions-for-fy-2023-11679242246735.html
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