Budget 2018: Jaitley reintroduces standard deduction of Rs 40,000 for salaried individuals

Finance Minister Arun Jaitley has chosen to bite the bullet for the benefit of the salaried individuals by reintroducing standard deduction. In his speech presenting Budget 2018, finance minister has proposed to offer a standard deduction of Rs 40,000 for salaried individuals.

There was a long-standing demand to bring back standard deduction. The concept of standard deduction was aimed at providing for the expenses of an employee’s daily upkeep. The concept of standard deduction was done away in the Budget 2005 (AY2006-2007) when the income tax rates were rationalised. Till FY2004-2005 standard deduction was capped at Rs 30,000.

According to a survey conducted by EY, about 59 percent of the respondents were of the view that Finance Minister will do away with multiple outdated deductions and instead prefer to introduce standard deduction. The logic behind the expectation was there were many administrative hassles behind the extant deductions. To worsen the situation these deductions are inadequate. For example, the deductions for medical expenses and transport are not inadequate as they are not revised for years in line with rising inflation.

The introduction of standard deduction has worked in favour of salaried individuals in two ways. First there is reduced income tax liability and second there is reduced paperwork. The standard deduction is extended without asking for any proof of expense or investment. The employer can deduct tax at source after accounting for the standard deduction without much hassle.