The standard deduction of ₹ 40,000 a year Union Finance Minister Arun Jaitley announced for salaried employees in lieu of their medical and transport expenses will be offset by the increase in the education cess. Hence, it will not benefit the salaried class, according to personal tax analysts.
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“In order to provide relief to salaried taxpayers, I propose to allow a standard deduction of ₹ 40,000 in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses,” Mr Jaitley said in his Budget speech. “However, the transport allowance at enhanced rate shall continue to be available to differently-abled persons. Also, other medical reimbursement benefits in case of hospitalisation etc for all employees shall continue,” he stated.
“Apart from reducing paperwork and compliance, this will help middle class employees even more in terms of reduction in their tax liability,” Mr Jaitley said. It would benefit pensioners as well, who normally did not enjoy any allowance on account of transport and medical expenses. The revenue cost of this decision was approximately ₹ 8,000 crore. However, the Budget replaced the two education cesses in total amounting to 3% with a ‘Health and Education’ cess of 4%, which would fetch the government an additional ₹ 11,000 crore, he said.
Kuldip Kumar, Leader Personal Tax, PwC India, said, “Reintroduced standard deduction of ₹ 40,000 is to benefit salaried class but the tax benefit is greatly offset due to the increase in cess by 1% and withdrawal of present tax exemption of medical reimbursement and transport allowance.”
Amit Maheshwari, Partner at Ashok Maheshwary & Associates, said, “The individual taxpayers don’t have much to cheer from this Budget. The direct tax proposals don’t result in a significant reduction in the tax in the hands of the individual taxpayer. The standard deduction is more than offset by the elimination of transport allowance and medical reimbursement and increase in cess.”
Further, a view is that the 10% long-term capital gains tax on stocks and mutual funds will further hurt the small savers who look to the stock market for higher returns.
“The individual taxpayers seem to have been discouraged for putting more money in stocks and mutual funds, which tend to be more productive asset classes,” Mr. Maheshwari said.
Cheers for senior citizens
The Budget did include a number of concessions for senior citizens, including an increase in the exemption limit on interest income on the deposits with banks and post offices from ₹ 10,000 to ₹ 50,000. TDS (tax deduction at source) will not be required to be deducted on such income.
“This benefit shall be available also for interest from all fixed deposits schemes and recurring deposit schemes,” Mr. Jaitley said.
The Budget also raised the limit of deduction for health insurance premium and medical expenditure from ₹ 30,000 to ₹ 50,000, under section 80D.
“All senior citizens will now be able to claim benefit of deduction up to ₹ 50,000 per annum in respect of any health insurance premium and/or any general medical expenditure incurred,” Mr. Jaitley said.
The Budget also raised the limit of deduction for medical expenditure in respect of certain critical illness from ₹ 60,000 in case of senior citizens and from ₹ 80,000 in case of very senior citizens to ₹1 lakh in respect of all senior citizens.
