Standard deduction for salaried class rewards honest taxpayers

New Delhi: Tax-free income for salaried class and pensioners has been raised to Rs 2.9 lakh by way of a Rs 40,000 standard deduction and not by hiking exemption limit as the government wanted the benefit to accrue to honest taxpayers, Finance Secretary Hasmukh Adhia said on Friday.

The standard deduction, which replaces tax-free transport allowance of Rs 1,600 per month (Rs 19,200 a year) and medical expense reimbursement of Rs 15,000 per annum, will accrue automatically to salaried class and pensioners without the requirement of furnishing proof like medical bills that are in vogue now.

The provision, which forms part of the Budget for 2018- 19, will apply from April 1 after Parliament approval.

Finance Minister Arun Jaitley chose the standard deduction route rather than raising tax exemption limit as the government wanted the benefit to go to only salaried class who honestly pay their taxes, Adhia said in an interview.

Raising I-T exemption limit would have benefited all taxpayers, including 1.88 crore individual business taxpayers who pay a total of Rs 48,000 crore tax or an average of Rs 25,753 each. This compares to 1.89 crore salaried individuals paying total tax Rs 1.44 lakh crore or Rs 76,306 each.

Under the Income Tax Act, income up to Rs 2.5 lakh is exempt from any tax. With the standard deduction, this limit would go up to Rs 2.9 lakh for salaried class and pensioners from April 1.

"You don't have to file any bills for receiving a tax-free medical allowance. You will get full Rs 40,000 benefit in medical and conveyance without the bill," Adhia said. Currently, salaried individuals have to provide bills to avail tax benefits for medical expenses up to Rs 15,000 under the I-T Act. However, for transport expenses, no bill is required to be produced.

Adhia said if the Income Tax exemption slab would have been increased from Rs 2.5 lakh, then the benefit would have reached the businesses and professionals as well and about 40 -50 lakh people would have gone out of tax net.

"We are targeting only salaried class which needs more exemption. Also, 40-50 lakh people go out of tax net the moment we increase the exemption. So our tax net expansion agenda is also not followed. Secondly, if we have to give any more benefits, it should go to the salaried class now," said Adhia, who is also the revenue secretary.