The re-inclusion of standard deduction seems to bring a wave of joy among the salaried class of the country. Finance Minister, Mr. Arun Jaitley in a revolutionary decision has opted to take the bull by its horns by reintroducing standard deduction when proposing the Union Budget 2018-19.
Yes, in what seems to be a great relief to salaried individuals, the finance minister has proposed a standard deduction of 40,000 INR for the salaried class in lieu of existing yearly medical reimbursement and transport allowance. Tax saved here would depend on the tax slab of an employee in which he/she falls into. Further, Mr. Arun Jaitley also proposed to increase the cess on corporation tax and personal income tax from 3% to 4%.
Standard deduction is basically a flat amount that is deducted from an employee’s salary before calculating his/her taxable income. Standard deduction was a component of the Income Tax Act until Mr. P. Chidambaram, former Finance Minister withdrew it in Budget 2005-06. Also, standard deduction permitted salaried individuals to take care of the expenses that didn’t fall under the income tax regulations.
Bringing back standard deduction will benefit the salaried class in two major ways. Firstly, they will enjoy reduced income tax liability and secondly, there will be less paperwork involved. Most importantly, standard deduction is granted without the need of furnishing any proof of investment or expense. Employers can deduct taxes at source after calculating standard deduction with least hassle.
The reintroduction of standard deduction will also substantially benefit pensioners and senior citizens, who do not enjoy allowance for medical and transport expenses. However, now they would be able to save the tax payable on the entire amount of standard deduction, but will have to pay the increased cess amount on the balance income.
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Source: Economic Times, Moneycontrol, Hindustan Times, NDTV & Times of India