Budget 2019: What FM Nirmala Sitharaman can do to remove the current flaws in Standard Deduction?

Updated: June 23, 2019 12:47:39 PM

The salaried class taxpayers have a lot of expectations from the Union Budget 2019. Here is what they can expect from Modi 2.0 regarding standard deduction.

budget 2019, union budget 2019 India, Modi 2.0, income tax, standard deduction, Finance Minister Nirmala Sitharaman, Arun JaitleyBudget 2019: The Finance Minister should consider to introduce slabs in standard deduction wherein higher deductions should be available to high taxpayers.

Union Budget 2019 India: Finance Minister Nirmala Sitharaman will present her first Union Budget on 5th July. The salaried class taxpayers have a lot of expectations from the first budget of Modi 2.0. Former Finance Minister Arun Jaitley, while presenting the Union Budget 2018, had mentioned that a substantial portion of personal income tax collections is contributed by the salaried class. He gave the statistics of the Financial Year 2016-17, wherein he mentioned that the average tax payment made by the salaried class is Rs 76,306 per individual salaried tax payer, while the average tax payment made by business class is Rs 25,753 per individual business tax payer.

However, in spite of the badge of ‘honest taxpayer’ a salaried taxpayer carries, the government did not introduce any new deduction for them until Financial Year 2018-19. The Finance Act, 2018 introduced Standard Deduction from salary income to the extent of Rs 40,000. However, in lieu of that the exemption for transport allowance of Rs 19,200 per annum and medical expenses reimbursement of Rs 15,000 per annum were withdrawn. Thus, the incremental deduction was just Rs 5,800 per annum. This wasn’t justifiable considering the fact that the average tax paid by the salaried class was almost three times more than what a business taxpayer pays.

Finance Minister Piyush Goyal in the Interim Budget 2019 raised the Standard Deduction for salaried class from Rs 40,000 to Rs 50,000 for the financial year 2019-20. Even this deduction isn’t enough considering the fact that the business taxpayer can claim various expenditures, business losses and even pay turnover based tax under the presumptive taxation scheme whereas the salaried class has only a few tax exemptions and deductions.

Thus, the salaried class people have high demand that they should be awarded with higher standard deduction considering the fact that they are the most honest tax payers of the country. This standard deduction should be raised to at least Rs 100,000. Another big flaw in the standard deduction offered at present is that it is the same for all the salaried class people, i.e., employees earning salary of Rs 10,000 per month as well as persons earning Rs 1 crore per month are eligible for the same amount of standard deduction, i.e., Rs 50,000 per annum. This is completely unjustifiable and unfair.

The Standard Deduction is not a new concept, it was allowable to the salaried taxpayers until Financial Year 2005-06. At that time, the standard deduction was based on the percentage of salary. If the amount of salary did not exceed Rs 500,000, the standard deduction was allowed to the extent of 40% of salary or Rs 30,000, whichever is less. In case of an assessee whose salary income exceeded Rs 500,000, a deduction of Rs 20,000 was allowable.

The Finance Minister should consider to introduce slabs in standard deduction wherein higher deductions should be available to high taxpayers. This will help in passing on some real benefit to the salaried class tax payers unlike this fixed amount of standard deduction of Rs 50,000 per annum. The Finance Minister definitely needs to pass on some tax benefits to the salaried class taxpayers as they contribute significantly to the tax collections of the government.

(By CA Tarun Kumar, R&D, Taxmann.com)

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