New Delhi: Taxpayers who receive pension from their former employers are eligible to claim standard deduction of Rs 40,000, Income Tax department has said.
“Finance Act, 2018 has amended Section 16 of the Income–tax Act, 1961(“the Act”) to provide that a taxpayer having income chargeable under the head “Salaries” shall be allowed a deduction of Rs 40,000-or the amount of salary, whichever is less, for computing his taxable income,” Central Board of Direct Taxes (CBDT) has said in a circular.
The CBDT said it had received representations as to whether a taxpayer, who receives pension from his former employer, shall also be eligible to claim this deduction.
Income Tax department has tweeted:
It is clarified that a 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.
— Income Tax India (@IncomeTaxIndia) April 5, 2018
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, CBDT explained.
Keeping income tax rates and slabs unchanged, Budget 2018-19 introduced Rs 40,000 standard deduction for salaried employees and pensioners in lieu of the exemption in respect of transport and medical expenses that was given till last financial year (2017-18).
The standard deduction was discontinued from the assessment year 2006-07, but was re-introduced in 2018-19 Budget.
In 2017-18, no tax was applicable on Rs 19,200 of transport allowance and medical expenditure of up to Rs 15,000. This has now been subsumed into the new standard deduction of Rs 40,000.
With PTI Inputs