Interim Finance Minister Piyush Goyal has proposed an increase in the amount of standard deduction for salaried individuals. In his Budget speech, the interim finance minister has proposed to increase the amount of standard deduction by Rs 10000 to Rs 50000 from Rs 40000 set last year.
Last year while presenting Budget 2018, finance minister Arun Jaitley had responded to the long standing demand to bring back standard deduction. While introducing the standard deduction of Rs 40000, the finance minister choose to do away Rs 19,200 as transport allowance and Rs 15,000 as medical reimbursement, which employees were getting earlier.
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 30000.
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.