Section 16 of Income Tax Act: Deduction on Salaries

Understanding taxes can be tricky, especially when it comes to knowing what deductions you can claim as a salaried employee. That’s where Section 16A of the Income Tax Act comes in. It helps reduce your taxable income by allowing certain deductions directly from your salary.

If you’ve ever wondered what the standard deduction under Section 16 IA means or how much benefit you can get, this guide is for you.

Let’s break it down step-by-step in simple words so you can make the most of your salary.

What is Section 16 of the Income Tax Act?

Section 16 of the Income Tax Act allows deductions from your gross salary income. It means before your income is taxed, a few amounts are reduced. These deductions help lower your taxable income, which means you pay less tax.

There are mainly three types of deductions under this section:

• Section 16(IA) : Standard Deduction

• Section 16(ii) : Entertainment Allowance

• Section 16(iii) : Professional Tax

Among these, the most common and widely used by salaried individuals is the standard deduction under Section 16 IA.

What is the Standard Deduction Under Section 16 IA?

The standard deduction on salary was reintroduced in the Union Budget 2018. It replaced transport and medical allowances for salaried people.

Key Facts:

• The standard deduction is ₹50,000 per year.

• It is available to all salaried individuals and pensioners.

• You do not need to submit any bills or proof to claim it.

• It is given automatically when you file your income tax return or when your employer deducts TDS.

Why is it Helpful?

This deduction brings tax relief by reducing your total salary income. That means less income = less tax.

How Does the Standard Deduction Work?

Let’s take a simple example.

• Your annual salary = ₹6,00,000

• You claim the standard deduction = ₹50,000

• Your taxable salary = ₹5,50,000

The ₹50,000 is subtracted before calculating tax. So, you save tax based on your slab.

Tax Saving Example:

If you're in the 10% tax slab, you save:

₹50,000 * 10% = ₹5,000

In the 20% tax slab, you save:

₹50,000 * 20% = ₹10,000

Who Can Claim Standard Deduction u/s 16?

Here’s who qualifies:

• Salaried employees: working professionals who get a monthly salary from an employer.

• Pensioners: even after retirement, if you get a pension from your former employer, you’re eligible.

Note: Business owners and freelancers cannot claim this deduction.

Documents Required to Claim Section 16A Deduction

Good news! You don’t need to file any separate documents to claim the standard deduction under Section 16 IA.

Here’s What You Need:

• Form 16 from your employer

• Salary slips (for your reference)

• Pension statement (if you’re a pensioner)

Your employer already applies this deduction in Form 16, which helps during tax filing.

Other Deductions Under Section 16 of the Income Tax Act

Though Section 16A is the most popular, let’s understand the other two parts:

1. Section 16(ii): Entertainment Allowance

It is applicable only to government employees.

• Max deduction allowed:

  • 20% of basic salary, or

  • ₹5,000, or

  • Actual amount received (Whichever is less)

Private-sector employees are not eligible for this deduction.

2. Section 16(iii): Professional Tax

• The employer pays professional tax to the state government.

• You can claim a deduction equal to the amount paid.

• It is shown in your salary slip and Form 16.

Why Understanding Section 16A is Important?

Understanding standard deduction u/s 16 helps you:

• File your ITR correctly.

• Plan your salary structure better.

• Maximize your tax savings.

Most people ignore these simple deductions and end up paying extra tax. Don’t make that mistake.

How to Claim the Standard Deduction?

Here’s a simple step-by-step guide:

• Check Form 16 from your employer,Part B shows the standard deduction entry.

• File your income tax return (ITR) , Choose the correct form (ITR-1 for most salaried people).

• Enter your salary income.

• The ₹50,000 deduction is applied automatically.

If you're using an app or online portal, the software usually calculates it on its own.

Old Regime vs New Regime: Is Standard Deduction Available?

Yes, the standard deduction is available in both the tax regimes:

Old Regime:

• Standard deduction of ₹50,000

• Plus, all other deductions like 80C, 80D, HRA, etc.

New Regime (updated for FY 2024–25):

• Standard deduction of ₹50,000

• But most other deductions are not allowed.

So, even if you switch to the new regime, you’ll still get the benefit of the Section 16A deduction.

Latest Updates on Standard Deduction

Here’s what you should know for the current financial year (FY 2024–25):

• The standard deduction amount remains ₹50,000.

• It is available to all who opt for the old or new tax regime.

• No change in conditions or limits as per Budget 2024.

Common Mistakes People Make

Here are some mistakes to avoid:

• Thinking only the old regime allows a standard deduction.

• Not checking Form 16 properly.

• Filing ITR with wrong salary income (not reduced by deduction).

• Assuming it’s optional (it’s automatic!).

Make sure you avoid these to get the full benefit.

How Zactor Makes It Easier

Managing your taxes and savings can get confusing. That’s where Zactor comes in.

Here’s how Zactor helps:

• Set Goals : Plan smartly for your next big move, house, car, wedding, or retirement.

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Final Thoughts

The standard deduction under Section 16 IA is one of the simplest ways for salaried people to save money on taxes. It doesn’t need paperwork, and it’s applied automatically, yet many people don’t fully understand its benefits. By knowing how Section 16 of the Income Tax Act works, you can make smarter decisions when filing your return or planning your salary.

And remember, smart financial planning doesn’t stop here. With a tool like Zactor, you can take control of your money, reduce your tax burden, and move closer to your financial goals with ease.

Start your journey to financial confidence with Zactor today! To learn more, explore Zactor’s Informative blogs.