Budget 2018 income tax expectations: Good news for salaried class; FM Arun Jaitley may introduce standard deduction

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Published: January 25, 2018 2:21:46 PM

Budget 2018: PMO and the Finance Ministry are said to be discussing the quantum of standard deduction for salaried employee and are also studying the revenue implication of giving a generous standard tax deduction.

For salaried class, here is major reform Modi governemnt may roll outBudget 2018: ET Now has reported that the Modi government is working on a mega reform to ease salary structures.

Budget 2018: With the Union Budget to be presented soon by Finance Minister Arun Jaitley, various sections of the society have expressed their budget expectations. Whether their wishes get fulfilled this time is yet to be seen. However, if some reports are to be believed, then good news may finally arrive for the salaried class on February 1. In fact, ET Now has tweeted that “after the rollout of GST, the Narendra Modi government has its eyes set on the next big tax reform. And it’s a reform that will be cheered by all salaried folks.”

In its exclusive report, ET Now has said that the Modi government is working on a mega reform to ease salary structures. The Modi government may give a standard deduction as tax-free expense to employees. In fact, PMO and the Finance Ministry are discussing the quantum of standard deduction for salaried employee and are also studying the revenue implication of giving a generous standard tax deduction. They want the salaried employee get more in hand and be free of cumbersome paperwork.

According to ET Now, standard deduction over time may make the complicated tax-free heads redundant. The government wants to bring parity in the tax burden of salaried and non-salaried assessees.

It may be noted that we had also recently reported that a majority of people, including tax experts, believe that to bring in parity between individuals carrying on business and those in employment, there is need for reintroduction of erstwhile standard deduction in India, which will result in more money inflow to the common man. And this should be done in the Union Budget 2018.

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In fact, standard deduction for the salaried class under Section 16 of the Income Tax Act was introduced in India in the year 1974-75, but was withdrawn in 2006 by P. Chidambaram on the grounds that there was an equivalent increase in the basic exemption limit and 80C deductions. The withdrawal of standard deduction was made as part of the restructuring of the tax rates apparently on the assumption that standard deduction is an allowance rather than a deduction on account of the expenditure incurred by an employee in the performance of his duties for which he gets paid by way of salary.

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It is pertinent to note that that up to the assessment year 1974-75, the Income-Tax Act had a provision for allowing to the salaried persons deductions for purchase of books, car maintenance etc. incurred wholly, exclusively and necessarily for the purpose of employment. From 1975-76, a composite deduction at certain percentage of salary (changed from time to time) was introduced. Thus, the standard deduction permissible under Section 16 of the I-T Act till Finance Act 2005 was intended to cover the expenditure incurred for the purpose of employment and didn’t constitute a personal allowance.

Expert Take on Standard Deduction

According to tax experts, reintroduction of standard deduction has been a long-pending demand of salaried individuals in India. It is also desirable to bring in parity between individuals carrying on business and those in employment.

That is because “an individual carrying on business or profession is eligible to claim deduction for expenses incurred towards his business. These include fuel and conveyance expenses, depreciation on car and motor bike, expenses incurred towards subscription of books & periodicals, attending seminars etc. In contrast, an individual pursuing an employment is not eligible to claim any expenses except for some relief towards conveyance allowance by his employer. The fact is that individuals in employment do need to incur expense to keep them updated with the latest developments and meet the requirements of their employment. Therefore, to bring in parity, a standard deduction should be allowed to individuals carrying on employment,” says Vikas Vasal, National Leader-Tax, Grant Thornton in India.

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