Budget 2018: The salaried class is the most tax-compliant, and yet there is little that is done for them in terms of tax relief. In 2005, the standard deduction available to this class was removed.
Budget 2018: The salaried class is the most tax-compliant, and yet there is little that is done for them in terms of tax relief. In 2005, the standard deduction available to this class was removed with the justification that threshold for basic exemption was increased that year from Rs 50,000 to Rs 1 lakh and tax brackets were scaled up. Simply put, a standard deduction is a fixed percentage or amount of deduction on salaried individuals’ remuneration, as a result of which their taxable income is reduced to that extent. That year, while the increase in the threshold for relief in the form of basic exemption benefited all, it was only the salaried class that bore the brunt, since in its case this relief was offset by removal of the earlier standard deduction. It’s time standard deduction is reintroduced for this class. If the government feels this is too much as a relief measure, it could do away with some exemptions such as LTC, conveyance allowance, children education allowance and medical reimbursement, which barely provide any relief to the salaried class in view of their limitations vis-à-vis the cost of travel, education, medicines, etc.
Today, salaried individuals are only eligible for exemption on medical expenses up to Rs 15,000 per annum. LTC is allowed for two journeys in a block of four calendar years. For such minimal tax relief, employers have the arduous task of ensuring that proof is collected from every employee and duly verified. By doing away with such exemptions and bringing in a standard deduction, employers and employees will be rid of administrative issues, and tax authorities will also be freed from monitoring authenticity of the claims. It is evident that by reintroducing standard deduction and removing tax exemption option, tax compliance will be made significantly easier—without making a dent in tax revenues. It should not, therefore, be too much to expect that this is done at long last.
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If it is still felt that standard deduction should not be reintroduced, the government could at least raise current limits for exemptions available to the salaried. For example, limit for exemption in the form of Children Education Allowance of Rs 100 per month per child needs a relook. And in this day and age, how does one justify an exemption cap of Rs 15,000 per annum for medical reimbursements covering entire family? Why should LTC be restricted to two journeys in four years? Most of these exemption limits were set a couple of decades ago. It’s time these are increased to match the cost of living today. Every year, the salaried class looks at the finance minister with hope, but is left with very little to be cheerful about. This year, it not only expects that the limits set on exemptions are scaled up, but standard deduction is also introduced. However, whether this class will see any tangible benefit from this Budget or just some good words from the finance minister remains to be seen.
(Krishna Kanakia, director, Personal Tax, PwC India, also contributed to this article)