The finance ministry will not do away with standard deduction available to salaried employees. The available deduction is highest -- at Rs 30,000 a year -- for employees with an annual gross salary below Rs 1.5 lakh (Rs 150,000).
According to officials in the revenue department, government employees and middle-income salaried class would be adversely affected if the standard deduction was eliminated.
Almost 73 per cent of salaried employees who file their returns had an annual income below Rs 1.5 lakh, they pointed out.
Officials said the argument for retaining the standard deduction for the salaried class was valid.'
They also incur expenditure incidental to their work similar to that incurred by lawyers and doctors, who claim deductions for expenses like their apparel, etc.
The political compulsion of not coming down heavily on the middle class would also favour retention of the standard deduction for salaried employees, they pointed out.
At present, for an annual salary below Rs 1.5 lakh, the deduction is available to the extent of one-third of the total salary or Rs 30,000, whichever is less. For salaries between Rs 1.5 lakh and Rs 3 lakh (Rs 300,000), the ceiling is Rs 25,000 and the limit for an annual salary in the Rs 3-5 lakh bracket is Rs 20,000. No deduction is available for an annual salary of over Rs 5 lakh (Rs 500,000).
The Kelkar task force on direct taxes has recommended elimination of the standard deduction.
The final report has said salaried employees evade taxes through rent seeking and voucher payments.
A large number of perquisites available to salaried employees were either concessionally treated or fully exempt, thereby substantially reducing their effective tax burden, the Kelkar report said.
For the self-employed, all such benefits had to be paid for out of the post-tax income, it added, rebutting the claim that the standard deduction increased the tax burden on salaried taxpayers.
Pointing out that the self-employed contribute 65 per cent of the total income tax collection, Kelkar's task force said that the levels of standard deduction had increased out of sync with the actual employment related expenses.
The level of Rs 500 in 1974-75 was just Rs 5,000 in current terms, it said.
The report, however, recommended continuation of the exemption of conveyance allowance, subject to a ceiling of Rs 9,600.
It said exemption on the conveyance allowance would serve as a reasonable deduction for employment-related expenses.
The additional liability of the salary earner would be more than met by the reduction in the income tax rates proposed by the task force, the report said.
