Finance Act 2018 Clarifies Applicability of Standard Deduction For Pensioners

Section 16 of Income–tax Act, 1961 amended to provide that a salaried class be allowed a deduction of Rs 40,000 or the amount of salary.

In relation to the changes that were proposed in the Budget, the Finance Act, 2018 has issued a clarification regarding applicability of standard deduction to pension received from former employer

The media statement released by the Income Tax Department states, ” Clarified Section 16 of Income–tax Act, 1961 to provide a deduction of Rs 40,000 or the amount of salary, whichever is less, to the salaried class for computing taxable income .”

The statement further states that the pension received by a taxpayer from his former employer is taxable under the head “Salaries”. Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs 40,000/- or the amount of pension, whichever is less, under Section 16 of the Act.

Standard deduction was brought back by the finance Minister, Arun Jailtley, in the Budget 2018 to offer a relief to the salaried class. While standard deduction was introduced, medical and transport allowance were withdrawan by the government, leaving a marginal tax benefit to the salaried class.