Can a retired person claim the Rs 40,000 standard deduction?

Any taxpayer, who receives pension from his former employer, can claim a deduction of Rs 40,000 or the amount of pension, whichever is less. However, there is a big catch!

Earlier pensioners were not able to enjoy any allowance on account of transport and medical expenses, but after this provision they will also get the benefit of this deduction.

You must be aware that starting from FY18-19, every salaried person is entitled to claim a ‘standard deduction’ of Rs 40,000, which was last abolished in the Finance Act 2005. However, some people were not sure whether pensioners are also eligible for claiming this deduction. Keeping their concerns in view, the Central Board of Direct Taxes (CBDT) has now clarified that any taxpayer, who receives pension from his former employer, can claim a deduction of Rs 40,000 or the amount of pension, whichever is less, u/s 16 of the Income Tax Act.

As per CBDT, the pension received by a taxpayer is taxable under the head ‘Salaries’. The Sec 16 of the I-T Act, 1961 has now been amended by the Finance Act 2018 to provide that a taxpayer having income chargeable under the head ‘Salaries’ will be allowed a deduction of Rs 40,000, or the amount of salary, whichever is less, for computing his taxable income. Accordingly, any taxpayer who is in receipt of pension will be entitled to claim this deduction, or the amount of pension, whichever is less.

Q : - Are family members of pensioners also allowed to avail Standard Deduction?However, according to tax experts, while pensioners who are receiving      pension themselves are eligible to avail standard deduction, their family members who are receiving pension as legal heirs are not eligible for the same.

Earlier pensioners were not able to enjoy any allowance on account of transport and medical expenses, but after this provision they will also get the benefit of this deduction
However, in case an employee passes away, then after his death the pension is received by his family members. Pension received by dependent family members of the retired individual is known as family pension and is considered as ‘income from other sources’. “For family pension, a standard deduction u/s 57(iia) is available under which an amount of Rs 15,000 or 1/3rd of the uncommuted pension received, whichever is less, shall be exempt. Spouse, children below the age of 25 years, unmarried daughter and dependent parents in certain cases shall come under the definition of dependent family members


Query: My husband has purchased a flat in my name. He has taken a housing loan to finance the purchase. Will he be able to avail of the income tax benefits? 

Ans : For claiming home loan tax benefits on the interest and the principal, the person has to be a joint owner in the property as well as the home loan co-borrower. In your case, it seems that your husband is not the co-owner of the property, so he will not be able to claim the income tax benefits. 

Query: I made capital gains of about Rs 1 crore from the sale of property in the financial year 2017-18. The same year, I invested Rs 50 lakh in infrastructure bonds to save capital gains tax. Can I invest the remaining Rs 50 lakh in infrastructure bonds in 2018-19 as well to save tax? 

Ans : Given that you have already exhausted the limit of Rs 50 lakh in 2017-18, you will not be able to save tax on the balance Rs 50 lakh by investing in infra bonds in 2018-19. According to Section 54EC of the Income-Tax Act, capital gains on the sale of a long-term capital asset will not be taxable if the investment is made in specified bonds within six months from the date of sale. But this investment cannot exceed Rs 50 lakh in aggregate in the year in which the property is sold and the subsequent year.

Query: I am retired and draw pension from the EPFO, my former employer—through an LIC pension unit— and LIC’s Jeevan Suraksha policy. Will this income be taxable? Can I claim the Rs 40,000 standard deduction? 

Ans : The pension amount received during the year from all of these funds shall be taxable in your hands. However, the sum received from the EPFO and the LIC pension unit shall be taxable under the head ‘salary’ and the sum received from Jeevan Surakhsa policy of LIC shall be taxable under the head ‘income from other sources’. From 2018-19, you can claim the standard deduction of Rs 40,000 for the pension received from EPFO and your employer.