#5 - What Is STANDARD DEDUCTION | EXAMPLES With STANDARD DEDUCTION | FinCalC [VIDEO]

Standard Deduction is a Flat Deduction that was introduced again by the government of India in Budget 2018. 
One important point to note is that, Standard Deduction is applicable only to Employees and Pensioners. 
So if you are a Businessman, you cannot avail the benefits of Standard Deduction to reduce Income Tax. 

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In Budget 2018, a Standard Deduction of Rs. 40,000 was introduced to reduce the Income Tax of Salaried Employees and Pensioners. 
This Standard deduction had replaced two components of Income Tax in Financial Year 2018-19, that is, Medical reimbursement of Rs. 15,000, and Transport allowance of Rs. 19,200. 
So these components were replaced by a flat Standard Deduction of Rs. 40,000 in Financial Year 2018-19. 

In Budget 2019, another change related to Standard Deduction was made in the favor of Salaried Employees and Pensioners. 
This Standard Deduction was increased from Rs. 40,000 to Rs. 50,000, which will be applicable from Financial Year 2019-20. This will help to reduce your total Income Tax only if you are a Salaried Employee or Pensioner. 

Let us now see how this Standard Deduction will be applicable with the help of example. 
Let's say your total income in Financial year 2019-20 is Rs. 6 Lacs. 
On this total Income, Standard Deduction of Rs. 50,000 will be applicable in case you are an Employee or Pensioner, and this will reduce your Taxable Income to Rs. 5 Lacs 50,000. 
Taxable Income is the Income on which we calculate our Income Tax. If there are no investments made in Financial Year 2019-20, Income Tax will be calculated on Taxable Income of Rs. 5 Lacs 50,000. 

So based on the Tax Slab rates for Financial Year 2019-20: 
- 5% Tax will be applicable on income between Rs. 2 Lac 50,000 to Rs. 5 Lacs, which is equal to Rs. 12,500. 
- 20% Tax will be applicable on income between Rs. 5 Lacs to Rs. 5 Lacs 50,000, which is equal to Rs. 10,000. 
- Additionally, cess of 4% will be applicable on this Income Tax, which is equal to Rs. 900, thus making your total Income Tax as Rs. 23,400. 

You can also Download our Free Android App - FinCalC, to calculate and check details of your Income Tax.

In the previous video, we have seen how you can make use of maximum Tax rebate of Rs. 12,500, by getting your taxable Income to below Rs. 5 lacs. 
So instead of paying Income Tax of Rs. 24,400, you can make appropriate Investments to get your Taxable Income to below Rs. 5 Lacs and avoid any Income Tax to be paid. 

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