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Finance Minister Arun Jaitley on Thursday provided little relief to salaried class as benefits under the proposed Rs 40,000 standard deduction will be neutralised to a large extent by inclusion of transport and medical allowances and 1 per cent hike in health and education cess.
Already the individual tax payer was getting benefit of Rs 19,200 under transport allowance and Rs 15,000 under the medical allowance. Both these components add to the tax benefit of Rs 34,200 per annum.
So, the effective tax gain is to the tune of Rs 5,800 per annum with the introduction of standard deduction.
According to Parizad Sirwalla, partner (tax), KPMG, the withdrawal of annual tax free transport allowance and medical reimbursements has squared off the benefit on account of standard deduction.
“An annual incremental net reduction of Rs 5,800 in income results into tax savings of Rs 302 and Rs 2,081,” Sirwalla said.
At the same time, Sirwalla said, maximum tax rate overall has increased to 35.88 per cent from existing 35.53 per cent taking into account 1 per cent increase in education cess.
“In order to provide relief to salaried taxpayers, I propose to allow a standard deduction of Rs 40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses,” Jaitley said in his Budget speech.
This decision to allow standard deduction shall significantly benefit the pensioners also, who normally do not enjoy any allowance on account of transport and medical
expenses, he said.
“The revenue cost of this decision is approximately Rs 8,000 crore. The total number of salaried employees and pensioners who will benefit from this decision is around 2.5 crore,” the minister said.
According to Neeru Ahuja, Partner Deloitte India, on the taxation side, industry and individuals are “little disappointed that no significant tax relief has been provided in spite of increased compliance by taxpayers”.