Standard Deduction for Salaried Employees


Contrary to expectations, the Finance Minister has not announced any changes in the personal income — tax rates. However, he has reintroduced Standard Deduction of Rs 40,000 for Salaried Employees which was abolished in the assessment year 2006-07.

The Finance Minister highlighted that higher income tax was paid by individual salaried taxpayers in compared to individual business taxpayers. The standard deduction has been introduced to address this disparity between the taxpayers.

However, one has to note that this Standard Deduction is in lieu of the existing medical and travel allowance available to salaried employees. Under the current tax regime, salaried employees are entitled for tax free medical reimbursement up to Rs 15,000 per annum and the Travel Allowance up to Rs 19,200 per year, totalling to Rs 34,200. Against this salaried employee is now given standard deduction of Rs 40,000.

On a simple comparison, it is evident that the actual benefit to individual salaried taxpayers is only Rs 5,800 and at 30 per cent tax the rate tax benefit works out to only Rs 1950. Without doubt, the standard deduction reduces administrative hassles to a great extent, but it in reality, it is an eye candy with trivial benefits.

By Sneh Bhuta

The author is the Senior Consultant – Business Advisory at N. A. Shah Associates