New Delhi, Feb 24 (UNI) Experts today are of the view that the withdrawal of standard deduction for the salaried class was wrong, arbitrary and unjustified which discriminated against salaried assesses and called for a restoration of standard deduction in this year's Budget.
Income-tax is a levy not on gross receipts but on income remaining after deducting the expenses incurred in earning it.
But in the case of salaried taxpayers this has been done away with.
The principle of allowing expenses relatable to taxable incomes has been recognised in taxing business income (Section 29), property income (Section 24), income from other sources (Section 57) and capital gains (Section 48) while salaried class has been left out of its ambit.
Finance Minister P Chidambaram said, ''Given the higher exemption limits and the scaling up of brackets, the need for a separate personal allowance does not exist. Therefore, in conformity with growing international practice, I propose to remove the standard deduction.''(Para 153 of the Budget speech 2006-07) However, two years since that budget, there is an increasing clamoor for the restoration of the deduction.
Much of the reasons Mr Chidambaram gave has been measured and found wanting.
The basic exemption limit has been increased and tax brackets re-arranged for all categories of taxpayers, not merely for salaried employees.
''I am in variance with the government's thinking. The standard deduction is something that is characteristic of people who earn a salary. There are certain expenses which are related the job and there is nothing personal about it,'' said Institute of Company Secretaries of India Secretary and CEO N K Jain.
When Mr Chidambaram said the deduction being taken away has been suitably adjusted by raising exemption limits, the exemption limit was raised by Rs 10,000 last year and is applicable for everyone and not only for salaried people, Mr Jain said.
''Salaried people are at a great disadvantage because the quantum of increase in exemption is minimal. You have separate exemption limit for women of Rs 1,45,000 and senior citizens at Rs 1, 95,000.
By this logic, we now need a separate exemption limit for salaried people.
Either you have a separate exemption limit which takes into account all the expenses or if the exemption limit is uniform then make standard deduction available,'' Mr Jain said.
Up to assessment year (AY) 1974-75, salaried assesses were entitled to get deduction from their salaries to arrive at taxable income, expenses for (i) conveyance used for employment; (ii) expenses on books and other publications; (iii) taxes on profession; and (iv) other expenses, which, by the conditions of service, the employees were required to spend. This was in consonance with computational provisions of other income' in the I-T Act.
The practice of giving deduction for individual items of expenses falling in the four categories was given up from AY 1975-76 to save time and energy in scrutinising such claims, and salaried assesses were compensated for such expenses by a lump sum deduction called SD.
In 2005-06, before the deduction was done away with, it stood at Rs 30,000 or 40 per cent of your gross salary, whichever is less.
Mr Chidambaram's second reason of treating standard deduction as a separate personal allowance' as presumed has never been the case.
''In today's world if you consider reading a newspaper and journal as purely a personal gain and not a path for professional progression is completely incorrect as knowledge needs to be updated constantly in the competitive world,'' said Dr Rajiv Gupta a Reader in the Department of Commerce and Business Administration, Government Post Graduate College, Noida.
Mr Gupta had filed an 80 page PIL with the Supreme Court of India, which was rejected on the grounds of being a government employee.
''Salaried class was allowed to deduct their expenses since 1922 to 2004 but after disallowances of standard deduction salaried people are bound to pay tax on gross income,'' said Mr Gupta.
The removal of standard deduction is not in accordance with ''growing international practice'', as many countries are giving such allowance to salaried taxpayers.
Standard deduction is still available in countries like the US, France, UK and Switzerland among other, Mr Gupta added.
''In developed economies, standard deduction are available inspite of all exercises for simplification and rationalisation of tax regime,'' Mr Jain said.
The government's view is of doing away with various deductions and this is in the name of simplification of law. The Government claims that gradually all deductions will be done away with and exemption limits be suitably adjusted.
Even Central Board of Direct Taxes (CBDT) members when contacted, who wished not to be named, said there is a strong case of the restoration of standard deduction.
''We have formally discussed it with senior government official and even CBDT is affected by the decision. Apparently, there is no logic in discontinuing SD,'' the member said.
Doing so, they fear, might leave the 2.7 crore taxpayers who contribute about 35 per cent of the personal tax revenues, disgruntled and demoralised.
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