In section 16 of the Income-tax Act, after clause (i) [as omitted by section 6 of the Finance Act, 2005], the following clause shall be inserted with effect from the 1st day of April, 2019, namely:

(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less.

The standard deduction is again introduced by the Finance Bill, 2018 for the salaried employees. The intention of the bill is to benefit larger part of the economy, who is serving the society through employment. The deduction under section 16 is allowable of INR 40000 or amount of salary whichever is less.

For example,if X is employed and getting salary of INR 2750 per month, the standard deduction in his case is INR 33000(2750*12) or INR 40000 whichever is less.

In section 16 of the Income-tax Act, clause (i) shall be omitted with effect from the 1st day of April, 2006.

The deduction of section 16(i) of the Income tax Act, 1961 was omitted.

Amendment of section 16In section 16 of the Income Tax Act, with effect from the 1st day of April, 1975

(i) in respect of expenditure incidental to the employment of the assessee, a sum calculated on the basis provided hereunder, namely:

(a) where the salary derived from such employment does not exceed Rs. 10,000 (20 percent of such salary).

(b)   where the salary derived from such employment exceeds Rs. 10,000 (Rs. 2,000 plus 10 percent of the amount by which such salary exceeds Rs. 10,000 OR Rs. 3,500, whichever is less).

Provided that

i. where the assessee is in receipt of a conveyance allowance from his employer; or

ii. where any motor car, motor cycle, scooter or other moped is provided to the assessee by his employer for use by the assessee, otherwise than wholly and exclusively in the performance of his duties; or

iii. where one or more motor cars are owned or hired by the employer of the assessee and the assessee is allowed the use of such motor car or all or any of such motor cars, otherwise than wholly and exclusively in the performance of his duties, the deduction under this clause shall not exceed on thousand rupees;;

(b) clauses (iii), (iv) and (v) shall be omitted.

With a view to simplifying the assessment procedures of salaried taxpayers, the separate consideration in respect of items referred in (i) to (iv) above are proposed to be substituted by a standard deduction in respect of expenditure incidental to employment to be allowed in the computation of taxable income.

The amendment will take effect from 1st April, 1975 and will accordingly apply in relation to the assessment year 1975-76 and subsequent years.

The taxable salary computed after the following deduction:

(i) Deduction upto 500 rupees in respect of expenditure incurred by the tax paid on purchase of books and other publications cases for the purpose of duties.

(ii) Deduction in respect of expenditure income tax payer in respect of taxes of on professionals, trades, callings or employment levied by any state government.

(iii) Where the taxpayer is not in receipt of a conveyance allowance, a deduction in respect of expenditure on travelling for the purposes of employment, calculated as under-

(a) where the tax payer owns a motor car which is used for the purpose of his employmentat the rate of Rs. 200 per month.

(b) Where the taxpayer owns a motorcycle, scooter or other mopeds which is used for the purpose of employmentat the rate of Rs. 75.

(c) in any other caseat the rate of Rs.50 per month.

(iv) Deduction in respect of other expenditure incurred by the tax payer, which, by the conditions of his service, he is required to spend out of his remuneration wholly, exclusively and necessarily in the performance of duties.