STING IN STANDARD DEDUCTION PLAN
PROPOSAL Deduction introduced in lieu of exemptions on medical, travel the salaried enjoy NEWDELHI:
The announcement of a standard deduction of ₹40,000 looked good till the numbers were done.
The deduction has been introduced in lieu of the exemptions on medical and travel that the salaried enjoy. The maximum benefit that a taxpayer in the highest tax bracket (of 31.2%) from a standard deduction of ₹40,000 is just ₹1,810. The top tax slab of 30.9% is now at 31.2% due to the hike in the education cess, to 4% from the existing 3%.
In his speech, Union finance minister Arun Jaitley said data analysis suggests that the major portion of personal income-tax collection comes from the salaried class.
He said: “For assessment year 2016-17, 1.89 crore salaried individuals have filed their returns and have paid total tax of ₹1.44 lakh crore, which works out to average tax payment of ₹76,306 per individual salaried taxpayer. As against this, 1.88 crore individual Standard Deduction
Medical Reimbursement (~1,250 per month) Transport Allowance (R~1,600 per month) Actual additional deduction
5.20% 20.80% 31.20%
business taxpayers, including professionals, who filed their returns for the same assessment year paid total tax of ₹48,000 crore, which works out to an average tax payment of ₹25,753 per individual business taxpayer. Therefore, in order to provide relief to salaried taxpayers, I propose to allow a standard deduction of ₹40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous
-~15,000 -~19,200 ~5,800
~302 ~1,206 ~1,810
medical expenses.”
At present, an individual can claim tax-free transport allowance of up to ₹1,600 per month and medical reimbursements of up to ₹1,250 per month. Together, these two allowances amount to a maximum of ₹34,200 a year.
Considering that the proposed standard deduction is in lieu of these two, which are currently available, the net increase in deduction would be a maximum of ₹5,800. This would help an individual in the highest tax bracket to save up to ₹1,810 in terms of tax outgo.
“It will hardly make any difference,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
However, “The only benefit would be that now an employee will not be required to submit bills to her employer to claim the benefit,” added Maheshwari.
If this were not bad enough, the cess hike is causing more furrows on the brows of the salaried. There is an increase in the rate of cess charged to both individual and corporate taxpayers.
From the current cess of 3% (2% for primary education and 1 % for secondary and higher education), a health and education cess of 4% will be levied on the tax payable from the financial year 2018-19.
As a result, if you had a tax liability of ₹1 lakh in the assessment year 2017-18, and paid a cess ₹3,000; then from the assessment year 2019-20—if your taxable incomes remains ₹1 lakh — you would have to pay a cess of ₹4,000.