The Indian government passed the 2019 interim tax budget, which increased the standard deduction limit from INR 40,000 to INR 50,000. The change took effect on 1 April 2019.

The standard deduction was initially introduced in the 2018 tax budget and has been effective since 1 April 2018. It replaced the former yearly deductions of INR 19,200 for transport allowances and INR 15,000 for medical reimbursement. The standard deduction is a fixed amount subtracted from the annual taxable salary. This reduces the employee’s taxable income and therefore the tax amount paid. The deduction is a simple calculation that does not require any expense receipts when claiming it. Prior to 2018, employees were required to provide receipts for medical and transport allowances. The standard deduction eliminates the need for this process.

This change primarily impacts employees. While they get to enjoy lower income tax, employers continue to be spared the administrative burden of processing transportation and medical bills.