Definition
Standard Deduction
The standard deduction is a flat amount subtracted from salary or pension income without needing any proof of expenses.
The standard deduction is a fixed reduction from your gross salary or pension that requires no bills or declarations. It replaced the older transport and medical allowances and simplifies tax for salaried individuals and pensioners.
Unlike most deductions, the standard deduction is available under both the old and new tax regimes, and recent budgets have made it somewhat more generous under the new regime to encourage adoption.
It applies only to salary and pension income, not to business or capital-gains income. Because it needs no documentation, it is one of the few benefits every eligible salaried taxpayer gets automatically.
Related terms
- Old vs New Tax RegimeIndia offers two personal income-tax regimes: the old one with various deductions and exemptions, and the new one with lower slab rates but most exemptions removed.
- Form 16Form 16 is the certificate your employer gives you summarising your salary and the tax deducted at source during the year.
- Professional TaxProfessional tax is a small tax levied by some state governments on salaried employees and professionals, deducted from salary and capped at a low annual maximum.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.