Standard Deduction of ₹ 40,000: Actual Benefit or Eye Wash?


In the Budget Speech, Hon’ble Finance Minster has shown his sympathy towards salaried individual by stating that:

There is a general perception in the society that individual business persons have better income as compared to salaried class. However, income tax data analysis suggests that major portion of personal income-tax collection comes from the salaried class. For assessment year 2016-17, 1.89 crore salaried individuals have filed their returns and have paid total tax of ₹ 1.44 lakh crores which works out to average tax payment of ₹ 76,306/- per individual salaried taxpayer. As against this, 1.88 crores individual business taxpayers including professionals, who filed their returns for the same assessment year paid total tax of ₹ 48,000 crores which works out to an average tax payment of ₹ 25,753/- per individual business taxpayer. 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 medical expenses. However, the transport allowance at enhanced rate shall continue to be available to differently abled persons. Also other medical reimbursement benefits in case of hospitalization etc., for all employees shall continue. Apart from reducing paper work and compliance, this will help middle class employees even more in terms of reduction in their tax liability.

The table compare the tax liability before or after such proposal at gross salary of ₹ 5,00,000:

ParticularsExisting LawProposed Law
Less: Transport Allowance (₹ 1,600 x 12)19,200Nil
Less: Medical Reimbursement (Maximum Limit)15,000Nil
Less: Standard DeductionNil40,000
Taxable Salary4,65,8004,60,000
Tax on above10,79010,500
Cess324 (@ 3%)420 (@ 4%)
Total after rounding off11,11010,920
Net Benefit190
Also Read  Extension of Due Dates for filing of FORM GSTR-1 and FORM GSTR-3B in certain cases

Thus, a salaried person earning salary of ₹ 5,00,000 p.a., will save ₹ 190/- due to this new proposal. I believe, government is giving you a treat of one medium sized pizza to you in the budget. Enjoy the benefit of standard deduction of ₹ 40,000? oops… your pizza

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