The Rs 40,000 'Standard Deduction' for tax payers, as proposed in the budget today, will translate into savings of just a few hundred rupees considering that it subsumes certain exemptions and is partly neutralised by increase in cess.
Presenting his fifth and the BJP government's last full- year budget before general elections next year, Finance Minister Arun Jaitley said that "a standard deduction of Rs 40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses" is proposed to be allowed to individual tax payers.
While there is no change in the rate of tax for individuals -- whether male/female resident, senior citizen or super senior citizen -- the rate of education cess, which is levied on tax payable, has been increased from 3 per cent to 4 per cent.
Rakesh Nangia, Managing Partner, Nangia & Co, said: "Standard deduction has made a comeback at a sum of Rs 40,000 but the benefit is effectively curtailed to Rs 5,800 since exemption in respect of Transport Allowance (Rs 19,200) and reimbursement of medical expenses (Rs 15,000) have been withdrawn."
The increase in the effective rate of cess further wipes out any benefit that would accrue to the salaried taxpayers, he said, adding that the major benefit of this amendment is only that the documentation will get reduced.
For individuals up to 60 years of age with Rs 6 lakh of annual income, the tax liability will get reduced by Rs 214 - from Rs 9,013 to Rs 8,798 (after considering deduction of Rs 1.5 lakh under Section 80C and deductions for Rs 25,000 of medical expense under 80D).
Those with salary of up to Rs 12 lakh, the saving would be Rs 610 as the tax liability will get reduced from Rs 1,23,600 to Rs 1,22,990. But for those with income of Rs 18 lakh, the tax liability goes up by Rs 1,190.
Senior citizens save between Rs 3,060 to Rs 15,760 on the three income slabs.
Senior Director of Deloitte India, Alok Agrawal said: "Standard deduction of Rs 40,000 per annum for salaried individuals seems to be a very nominal benefit as the current tax-free limit for medical expense reimbursement of Rs 15,000 per annum and transport allowance exemption of Rs 1,600 per month is anyway leading to a total tax-free salary of Rs 34,200."
Taxmann Director Rakesh Bhargava said: "In contrast to the expectations, nothing much has been proposed in personal taxation."
Nangia said it will now be extremely important to file returns on or before the due date.
A delayed return will mean that benefit of all deductions under section 80C, 80D, etc. will stand lapsed and the taxpayer will not be able to claim the same, he said, adding that this would tremendously improve compliance.
"One only hopes that the Income-tax Department improves its online return filing system so that taxpayers are not penalised for its website not working at the time of filing of the return," he said.
Also, in the budget, Jaitley made PAN mandatory for all non-individual taxpayers who engage in any financial transaction aggregating to Rs 2,50,000 in a financial year.
The requirement has been extended to any person who is authorised to act on behalf of such entity.
The PAN is intended to be used as a Unique Identity Number.
Nangia said the finance minister stated that salaried class taxpayers need to be put in parity with the individual business taxpayers who are able to claim the benefit of expenses and pay taxes only on net basis.
But the benefit of standard deduction will result in a negligible overall benefit of Rs 5,800, he said.
"Coupled with the increase in tax cost owing to the 1 per cent increase in health and education cess, this may actually result in a higher tax outgo for the salaried class taxpayers," he said.
Parizad Sirwalla, Partner and Head, Global Mobility Services Tax, KPMG in India (Personal Tax) said an annual incremental net reduction of Rs 5,800 as income translates into annual tax savings of Rs 302 and Rs 2,081.
The effective tax reduction by introduction of standard deduction will be further diluted by increase in cess, he said.
For senior citizens, the finance minister raised the deduction for interest on savings bank account and post office savings account five times to Rs 50,000 from the existing limits of Rs 10,000.
Further interest from fixed deposits and recurring deposits are also within the ambit of this deduction.
Union Budget 2018-19 also enhanced deduction for medical insurance under Section 80D for senior citizens from Rs 30,000 to Rs 50,000.
To further protect the senior citizens from rising medical costs, the deduction limit for critical specified illness has been enhanced to Rs 1,00,000.
TDS on fixed deposits senior citizens has been proposed to be levied only if interest is above Rs 50,000 per annum.
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