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Budget 2019: Why salaried Indians need a big hike in standard deduction

The income-tax rules seem skewed against salaried employees. While businessmen and consultants can claim exemptions against all kinds of expenses every month, for salaried employees, tax is deducted at source by the employer, which significantly lowers the take-home pay.

Is there a way to bring about a level playing field? A good way forward is by increasing standard deduction not by a token amount, but substantially. Standard deduction is the amount that gets subtracted from your taxable income.

Standard deduction was reintroduced by the Finance Act 2018 (it was last available for the financial year 2004-05). However, this standard deduction of Rs 40,000 subsumed the tax-exempt transport allowance — an annual figure of Rs 19,200 and the medical reimbursement that could be claimed up to Rs 15,000. In short, the end benefit was just an annual incremental net reduction in taxable income of Rs 5,800.

Although the standard deduction was further increased to Rs 50,000 in the 2019 interim budget for the current financial year, this still seems very inadequate if you look at the exemptions available to a consultant.

While the key exempt allowances — travel and medical reimbursement — no longer exist, the limits of the few that are still there have not been revised for years and remain unadjusted for rising inflation. For instance, the limits for children’s education allowance (Rs 100 per month per child, up to two children) and hostel allowance (Rs 300 per month per child, up to two children) were last revised almost two decades ago.