Types of Standard Deduction in Income Tax for 2022
A standard deduction is essentially a tax deduction that is permitted regardless of the expenditure or investment that the individual involved has undertaken.
This form of income tax standard deduction is permitted at a standard rate, thus no disclosures, investment proofs, or invoices evidencing the expense bills are necessary.
There are two types of standard deductions allowed under the Income Tax of India, and these has been provided below:
- Standard deduction allowed from rent:
Rent-related income is permitted to get a standard deduction of 30%.
- Standard deduction allowed from salary:
Standard Salary Deduction which is a standard salary deduction of Rs. 50,000 is permitted.
Standard Rental Income Deduction @ 30%
Under the heading “Income from House Property,” the rental income is categorised and taxed. It is one of the 5 heads of incomes in Income Tax.
To arrive at the Net Annual Value, a person generating rental income is first permitted to deduct the Municipal and other taxes paid to the Local Authority from the rental income earned and disclosed.
The Net Annual Value may also be reduced further under Section 24. Below is an example which might help you understand the same:
The standard deduction for rental income is available regardless of the actual costs associated with the property like municipal taxes or other generalized expenses. This Standard Deduction covers all costs incurred for maintaining property in good condition, such as maintenance, repairs which is added advantage and tax benefit to the tax payer. It is not necessary to keep track of evidence of the actual costs expended making the process simple, beneficial and easy.
If a person receives rent from many homes, they are all eligible to claim this standard deduction of 30%.
It is important to remember that this Standard Deduction may only be applied to rent for apartments or buildings; it cannot be applied to rent for unoccupied property which is an important point to be analysed and kept
Standard Salary Withholding
In Budget 2019, a standard deduction from salary of Rs. 50,000 was implemented and allowed, and it has been in effect for the Financial Year 2019–20 onwards.
Regardless of the actual expenditure borne by the employee, this deduction is permitted. Additionally, the employee is not obliged to provide the employer with any bills or documents in order to claim this deduction.
Transport Allowance and Medical Reimbursement, which were formerly available to employees and for which they had to provide receipts as proof of claim, have been replaced by this deduction currently. Now that the Transport Allowance and Medical Reimbursement deductions have been eliminated, Standard Deduction has taken their place which has also proven to be beneficial for the tax payers earning salary income.
The maximum standard deduction permitted would stay the same, at Rs. 50,000, even if you earned compensation from two companies during the year because this is a cumulative deduction (in aggregate). No matter if you obtained your salary income from a large corporation or a tiny sole proprietorship, you are still eligible to take the standard deduction making the process simpler and equal.
Additional Deductions Permitted for Income Tax
There are several more deductions permitted in addition to the Standard Deduction @ 30% described above. While many among theseprovided deductions are open to everyone, including employees earning income through salary, some of them are only available to those who are paid a salary.
The deduction or subtractionfor entertainment expenditure and the deduction for any taxes in the form of professional taxes will only be applicable to salaried employees. Salary earning employees have access to a number of exemptions in addition to these deductions.
Now concluding the article lets discuss and understand why today’s generation and job market is filled by people who are focusing more on pays rather than the opportunity to work and grow. The growth now is focused more on financial and charging the skills owned by them.
Our professional performance is measured by our wage on the job market, and we use this money to buy the things we need and desire. Our daily lives and their quality are impacted in a variety of ways by our salaries. Even the relationship between income and happiness has been studied in several research. According to the worldwide salary directory, obtaining a better paying job is typically a more successful tactic than negotiating a higher compensation from a current employer.
Salary is still one of the most essential factors when contemplating a new job. Why are individuals becoming more and more concerned about their income?
Why is a pay check such an important aspect of our lives?
More single-parent families and nano family surroundings
The percentage of people who live alone is significantly rising worldwide. Around the world, the trend toward single-person homes is expanding, bringing with it new and distinctive patterns of behaviour. People prefer realising themselves to making obligations. The cost of living is typically greater for single persons than it is for families with many members, and they frequently have to rely solely on their income to pay for all of their expenditures, including those for housing, food, travel, and hobbies. This strengthens the link between career advancement, dependable work, and therefore high pay.
This typically affects elder widowed or divorced persons as well as young adults who have left the nest and are prioritising their careers and education. Being financially independent is sufficient justification in and of itself for paying more attention to compensation.
Over time, real world incomes have not increased
Low wage growth has been an ongoing issue throughout the globe. Working people feel that their quality of living is not rising over the long term, particularly in the USA and Western Europe. Simply put, they are unable to buy more with their present income. The middle class in Western nations, which has profited the least from economic expansion since the 1970s, is particularly impacted by this problem. Additionally, there is a rapidly expanding class of wealthy people, which accentuates these disparities in wealth. A sizable portion of the workforce is unhappy with their salary as a result of the overall stagnation in real earnings.
According to a current international poll, every second employee feels their pay is too low for the role they occupy. People seek for employment who provide greater monetary remuneration if they wish to actively change and gradually raise their level of living.
An increasing number of individuals are deliberately taking on debt
High amounts of personal debt are another reason for a larger reliance on regular income. If they have to pay back their debts each month, people are more motivated to work. Mortgages and other housing loans are the main topics here. In order to determine which nations, have the highest levels of household debt, Eurostat compared average household debt to average household income. At the top of the list are Cyprus, the Netherlands, and Denmark. According to the findings of the international survey, up to 25% of workers experience stress due to a lack of money or other financial issues.
Around the time they become 30, when they establish their own families and settle their housing issues, people become the most sensitive to their pay.
Low levels of financial knowledge
Only a small percentage of individuals have learned the concepts necessary to successfully manage and organise their personal money.
There are various tests available online which can be taken by individuals for testing their financial literacy. These can be then used by them to improve the aspects they are lacking in.
The aspects of financial behaviour that score the lowest on all of the criteria seem to be connected to planning ahead, selecting goods, and consulting an expert for help. Test your own financial literacy by taking the quiz. The various techniques to save for the proverbial rainy day are frequently unknown to people. The usual guideline in personal financial planning is that emergency reserves should equal three to six months’ worth of income, which should be adequate protection for times when we are unemployed or run into other unanticipated circumstances.
The primary source of income for the majority of people who are working is their employer’s wage. Because there isn’t a financial safety net, people become more dependent on their income and sensitive to how much they can save after paying their regular bills.
And this should be changed as it would then help in improving not just an individuals live but also the economy in which we are living. The standard of living, GDP or Gross Domestic Product and the overall infrastructural standing of a country can be enhanced with this movement of the younger and mightier generation of the country.
Financial literacy is not simply about understanding how to earn money but how to make money work to earn even more such that you can lay a foundation for growth.