It's calculated by adding the taxpayer's standard deduction based on their filing status, plus an additional amount.
If you're the head of your household, it's $18,350. Individuals who are at least partially blind or at least 65 years old get a larger standard deduction. If you're single, you're married and filing separately or you're the head of household, it's $1,650.
For example, if your gross income is $100,000 this year but you qualify for a $10,000 standard deduction, then you will be taxed on $100,000 - $10,000 = $90,000.
In India, standard deduction was abolished in 2005. It had allowed a salaried employee to claim a flat deduction from salary income of Rs 30,000 or 40% of salary (if salary did not exceed Rs 5 Lakhs), or a deduction of Rs 20,000 (if salary exceeded Rs 5 lakh).
Standard Deduction from Salary: Standard Deduction of Rs. 40,000 is allowed from Salary Income for FY 2018-19. This limit has been increased to Rs. 50,000 from FY 2019-20.
Therefore,
the tax liability in such a situation will be zero. However,
if your net
taxable income exceeds Rs
5 lakh by even Re 1, say it is Rs
5,00,001, then you will not be eligible to avail
the benefit of
tax rebate.
Post tax, Rs 5 lakh income will be higher than Rs 5.16 lakh: Here's why.
| Income | Tax liability |
|---|
| Total tax liability | Rs 14,500 |
| Final Tax liability with cess @ 4% | Rs 15,080 |
First you can claim standard deduction of Rs 50,000 for FY 2019-20. You can invest Rs 1.5 lakh under section 80C in any of the eligible tax saving avenues. You can also invest Rs 50,000 under section 80CCD (1B) in the National Pension Scheme.
Increased standard deduction:
The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,200 for 2019 taxes (the ones you file in 2020). Married couples filing jointly see an increase from $12,700 to $24,400 for 2019.This threshold of Rs 2.5 lakh includes the standard deduction of Rs 50,000 for which no investment is required. If you are claiming more than Rs 50,000 as HRA exemption, or housing loan interest, or even the NPS contribution under Sec 80CCD(1b), you are better off in the existing structure.
Therefore, the taxpayer can claim a standard deduction of Rs. 40,000* or the amount of pension, whichever is less. *Increased to Rs 50,000 for FY 2019-2020(AY 2020-21) through the Interim Budget 2019.
Income tax slabs under the new tax regime for all individuals for FY 2020-21 (AY 2021-22)
| Income Tax Slab | Tax Rate |
|---|
| Rs 5 lakh to Rs 7.5 lakh | 10% |
| Rs 7.5 lakh to Rs 10 lakh | 15% |
| Rs 10 lakh to Rs 12.5 lakh | 20% |
| Rs 12.5 lakh to Rs 15 lakh | 25% |
5. Illustration on tax savings by senior citizens
| Particulars | Normal taxpayer | Senior Citizen |
|---|
| Less: Deduction under Section 80TTA | 5,000 | Not Applicable |
| Less: Deduction under Section 80TTB | Not Applicable | 50,000 |
| Taxable income | 3,50,000 | 3,05,000 |
| Tax (before 87A rebate) | 5,000 | 250 |
The standard deduction, however, nearly doubled for those filing single or married. Other notable deductions going away include moving expenses and alimony, while limits are being placed on deductions for mortgage interest, along with state and local taxes.
Itemized deductions
If you elected to use the standard deduction you would only reduce AGI by $12,200 making taxable income $27,800. You might benefit from itemizing your deductions on Form 1040 if you: Have itemized deductions that total more than the standard deduction you would receive (like in the example above)Itemizing means deducting each and every deductible expense you incurred during the tax year. For this to be worthwhile, your itemizable deductions must be greater than the standard deduction to which you are entitled. For the vast majority of taxpayers, itemizing will not be worth it for the 2018 and 2019 tax years.
You can't deduct both: You must choose between income tax and sales tax. As a general rule, you should deduct whichever is more. However, because of the annual cap, in some cases it won't make any difference which tax you choose to deduct. First, you have to figure out how much state income tax and sales tax you paid.
