Budget 2018: Standard Deduction For Salaried Employees May Make A Comeback

Chambers of commerce have suggested reintroduction of the standard deduction for salaried employees of at least Rs 1 lakh in Budget 2018.

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Budget 2018: Standard Deduction For Salaried Employees May Make A Comeback

Budget 2018: Standard deduction allowed salaried individuals to claim flat deduction from salaries.

Highlights

  1. Standard Deduction of Rs 1 lakh might be re-introduced
  2. The deduction was abolished with effect from A.Y. 2006-07
  3. The move is seen to give parity to salary earners w.r.t. business persons
The government may bring in standard deduction in Budget 2018 to reduce the tax burden of salaried individuals, according to majority of respondents in a pre-Budget survey from tax advisory firm EY. Standard deduction allows for a flat deduction from income of a salaried individual towards expenses an employee would incur in relation to his or her employment.  No proof is required.  But standard deduction, which was available to the salaried individuals on their taxable income, was abolished with effect from assessment year 2006-07.  

Chambers of commerce have suggested reintroduction of the standard deduction for salaried employees of at least Rs 1 lakh.

Tax experts say that reintroduction of standard deduction will help salaried employees get some parity with respect to businessmen and other self-employed professionals, who can claim a number of expenses such as rent, staff expenses and driver's salary etc. as business expenditure and reduce tax burden. 

"Salaried employees don't enjoy the degree of parity like businessmen, professionals or people having income from other sources like rentals, interest etc. so as to claim any expense related to their employment - be it expenditure for skill development. The salaried class enjoyed the benefit of standard deduction till AY 2005-06, before its withdrawal later; hence it should be restored to bring parity," said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.

Comments
Standard deduction, which existed till assessment year 2005-06, allowed salaried individuals to claim a flat deduction from his or her salary income of Rs 30,000 or 40 per cent of salary whichever is less for gross salary Rs.5 lakh or below. If the gross salary exceeded Rs 5 lakh, a standard deduction of Rs 20,000 was allowed. 

"There are various expenses that an employee incurs during the course of his or her employment for which no deduction is available. As per return filing statistics, the maximum number of returns has been filed in Form ITR 1, which is generally used by salaried persons and pensioners to file their annual return of income. Salaried employees are always considered as one of the main contributors towards direct taxes. The government should allow some additional benefits to the salaried employees by reintroducing the standard deductions type of provisions," says Naveen Wadhwa, DGM of Taxmann.

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