Budget 2023: Why standard deduction should be hiked
Akhil Chandna, Partner at Grant Thornton Bharat LLP points out that professionals are allowed to take deduction of all the actual expenses incurred by them i.e. on travel, printing and stationery, books, staff salary, vehicle running and maintenance, mobile expenses etc. “Considering this, the salaried class taxpayers should also be treated at par and should be allowed deduction of all the expenses incurred by them,” Chandna tells TOI.
“The standard deduction of Rs 50,000 per annum is not sufficient to cover all such expenses considering the increased standard of living and inflation. Hence, it is reasonably fair to increase the limit of standard deduction from existing Rs 50,000 to Rs 1,00,000,” he adds.
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According to Assocham, a Rs 50,000 standard deduction on salary does not provide any substantial relief to salaried persons. “Standard deduction is not meaningful to large numbers of salaried taxpayers as a substantial portion of the deduction is offset by levy of additional cess of 1% which was levied vide Finance Act, 2018,” it notes in its pre-Budget 2023 memorandum.
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The Institute of Chartered Accountants of India (ICAI) calls for an inflation indexed adjustment in standard deduction. “There are various expenses that the employees incur during the course of employment which they cannot claim as deduction. At the same time, the few exemptions that are available to them u/s 10 are subject to upper limits which have been fixed several years back and virtually serve no purpose on account of inflation,” ICAI explains in its pre-Budget 2023 memorandum.
ICAI is of the view that ideally, standard deduction may be revised every year based on the cost inflation index i.e. standard deduction amount to be revised and indexed annually. “For avoiding leakage of revenue, such deduction may be linked to cost inflation index just like as it happens for income under the head capital gains and maximum may be restricted up to say Rs 1,00,000,” it says.
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FICCI believes that with the increasing “Work From Home” trend, salaried individuals also incur expenses similar to business class. “An employee incurs higher work-related personal expenditure (like higher electricity, air conditioning, food, etc.) This should also reduce the disparity between salaried and business class with only the latter being eligible for deduction for expenses incurred by them for earning their income,” FICCI says in its pre-Budget 2023 recommendations.
Budget 2023 standard deduction @ Rs 1 lakh: How much will salaried taxpayers save?
- The Finance Act, 2018 introduced a standard deduction from salary income to the extent of Rs 40,000 which was increased to Rs 50,000 w.e.f financial year 2019-20 and onwards.
- However, in lieu of such deduction the exemption for transport allowance of Rs 19,200 per annum and medical expenses reimbursement of Rs 15,000 per annum were also withdrawn. Hence, the incremental relief remained only at Rs 15,800.
So how much will salaried taxpayers save in case Union Budget 2023 sees an increase in standard deduction from Rs 50,000 to Rs 1 lakh? We take a look at two scenarios:
As is evident from the table above, a salaried individual earning around Rs 7.5 lakh will see an income tax saving of Rs 10,400 and a person earning around Rs 15 lakh may save around Rs 15,600 additional in taxes per annum.