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Budget 2022: Will Govt Increase Standard Deduction to Rs 1 Lakh to Help the Salaried?

Budget Predictions: The Budget session this year is set to kick in and the salaried class in India stares at the date in anticipation of a number of changes that are going to affect their personal lives. The government, according to reports, is mulling a hike in the standard deduction limit, which is available to salaried employees and pensioners by 30 to 35 per cent during the upcoming budget session. The move, if implemented, will be a response to calls made by various industry bodies including FICCI, Assocham, and CII. The income tax slabs are however going to remain unchanged, officials have been quoted as saying in a report.

The Finance Act, 2018, introduced a standard deduction from salary income upto Rs 40,000 in lieu of reimbursement of medical expenses and transport allowance. Further, the benefit of additional deduction of Rs 5,800 is also reduced by the increase in cess rate from 3 per cent to 4 per cent. Standard deduction was further increased to Rs. 50,000 by the Finance Act, 2019. However, standard deduction will not be applicable for those who choose new tax regime.

A standard deduction is provided to salaried employees and taxpayers by the government to cover expenses incurred during employment, apart from profession tax on employment, which the employees cannot claim as deductions.

“The standard deduction for salaried employees should be reinstated to at least Rs. 100,000 to ease the tax burden of the employees and keeping in mind the rate of inflation and purchasing power of the salaried individual, which is dependent on salary available for disbursement. Also, particularly on ground of increasing trend of ‘Work from Home’ culture during COVID-19 pandemic period where employee incurs higher work related personal expenditure (like higher electricity, air conditioning, food, etc.),” Industry body FICCI has said in its memorandum. The exemption towards reimbursement of medical expenses and transport allowance should continue in addition to standard deduction, it has said.

The government, now, is said to have been mulling regarding the recommendations of the industry organisations, the Economic Times said in a report quoting officials.

“There are many suggestions on personal taxation. This year one common demand was to enhance the limit of standard deduction, especially considering inflated cost of medical expenses on account of Covid-19,” a senior government official told ET.

How Will Increasing Standard Deduction Help Salaried Taxpayers?

“Given that the inflation-related risks are likely to shape the monetary policy of the central bank, an increase in US federal bank rates will accentuate the cash outflow from markets and that the period of statutory concessions extended to both buyers, developers and other stakeholders in the market will lapse, the immediate focus will be on how to ensure any resultant shock will be cushioned through fiscal measures thereby providing more cash in hand for all stakeholders. This should be led by extending the tax concessionary benefits pertaining to affordable housing, increasing tax set-off for housing loan interest payment under sections 24, 80EE and specifically increasing the standard deduction which could increase the cash available through savings for taxpayers, said Ajay Sharma, managing director of Valuation Services at Colliers India.

“Standard deduction from salary can be claimed by all salaried employees irrespective of category and need of any investment. Standard deduction from salary was taken down for a number of years and was re-introduced by Budget 2018, which provided for a standard deduction of Rs. 40,000 from salary income. Simultaneously, the deductions in respect of transport allowance of Rs. 19,200 and medical reimbursement of Rs. 15,000 were withdrawn, thus providing minor benefit only,” said Aakanksha Goel, direct tax partner at T R Chadha & Co LLP.

“Standard deduction was raised to Rs. 50,000 from Financial Year 2019-20. Considering the inflation and increase in the cost of living during last 2 years, government should take a step forward to increase the standard deduction so that middle class salaried employees can have some sigh of relief, specially when deductions of Rs. 34,200 have already been withdrawn in guise of standard deduction,” she added.

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