Income tax return: Seniors cannot claim a standard deduction under these conditions Photo credit: Representative picture
New Delhi: Salaried employees receive a standard deduction of Rs 50,000 in income tax under Section 16 (ia) of the Income Tax Act. A standard deduction of Rs 40,000 was introduced in the 2018-19 Union budget, which was increased to Rs 50,000 in 2019-20 or in the 2020-21 assessment year.
An entrepreneur can claim various costs related to their business and reduce their taxable income. However, there are no such benefits for white-collar workers, while there is a cost to earn the salary they receive.
Employees also face a hurdle when applying for reimbursements such as medical care and transportation. The standard allowance allows a flat-rate deduction from salary to offset some of the expenses an employee would normally incur in connection with their employment.
Seniors: When does the standard deduction apply?
This deduction, although available to employees, can also be claimed by senior citizens. However, there are conditions under which seniors cannot claim this standard deduction.
Section 16 (ia) applies to salaried employees, including salaried employees and retirees, allowing seniors to claim an under-the-head allowance of Rs 50,000 only if they are earning a retirement income or salary.
When the standard deduction was introduced in 2018, there was uncertainty about the status of retirees as this applies to taxable income under the heading “Salary”. However, the Income Tax Department later issued a clarification stating that retirees can also claim the deduction as pensions are also taxable under the heading “Salary”.
If a senior does not earn a pension or a salary, he is not entitled to a standard deduction according to Section 16 (ia) of the IT Act. For example, a senior who has kept his money in a fixed deposit and earns his income from interest cannot claim this standard deduction.
However, seniors earning income interest can make a claim of up to Rs 50,000 under Section 80TTB, while the deduction is limited to Rs 10,000 for individual taxpayers.