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CA Dev Kumar Kothari has argued that there is a drafting mistake in the Finance Bill 2018<\/a> relating to the grant of standard deduction. He has explained what that mistake is and offered suggestions on how it can be rectified<\/p>\n There appears a drafting mistake in proposed clauses and notes vis a vis speech of FM and explanatory notes on clause no. 7 and 8 of the FB. Higher deduction linked with salary amount is desirable. <\/p>\n <\/p>\n Existing provisions: <\/p>\n Before reading proposed clauses let us have a look on the existing relevant provision, as referred to in clauses and notes which are necessary to consider effect of amendment. Relevant portion of S.17 in so far relevant to reading and linking proposed clauses are reproduced below:<\/p>\n "Salary", "perquisite" and "profits in lieu of salary" defined.<\/strong> <\/p>\n 17.<\/strong> For the purposes of sections 15 and 16 and of this section,-<\/p>\n Xxxx <\/p>\n (2<\/em>) "perquisite" includes-xxx<\/p>\n (viii) the value of any other fringe benefit or amenity as may be prescribed:]<\/strong> <\/p>\n [Provided<\/strong> that nothing in this clause shall apply to,-<\/p>\n (v<\/em>) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family [<\/strong>other than the treatment referred to in clauses (i<\/em>) and (ii<\/em>)];<\/strong> so, however, that such sum does not exceed fifteen thousand rupees in the previous year;<\/p>\n Proposal is reproduced below with highlights added: <\/p>\n From the THE FINANCE BILL, 2018 <\/p>\n 7. Amendment of section 16. <\/p>\n In section 16 of the Income-tax Act, after clause (i) [as omitted by section 6 of the Finance Act, 2005 (18 of 2005)], the following clause shall be inserted with effect from the 1st day of April, 2019, namely:–– <\/p>\n “(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less;”.<\/u> <\/u><\/p>\n Notes on clause <\/p>\n Clause 7 <\/em>of the Bill seeks to amend section 16 of the Income-tax Act relating to deductions from salaries. <\/p>\n The existing provisions of the said section, inter alia<\/em>, provide that the income chargeable under the head "Salaries" shall be computed after making certain deductions specified therein.<\/p>\n It is proposed to insert a new clause (ia<\/em>) in the said section so as to provide for deduction of forty thousand rupees or the amount of the salary, whichever is less, for the purpose of computing the income chargeable under the said head.<\/p>\n This amendment will take effect from <\/u>1st April, 2019<\/u> and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent years.<\/p>\n 8. Amendment of section 17 <\/strong> <\/p>\n In section 17 of the Income-tax Act, in clause (2), in the proviso occurring after sub-clause (viii), clause (v) shall be omitted<\/span> with effect from the 1st day of April, 2019.<\/p>\n From notes on clauses:<\/p>\n Clause 8 <\/em>of the Bill seeks to amend section 17 of the Income-tax Act relating to "Salary", "perquisite" and "profits in lieu of salary" defined. <\/p>\n Clause <\/em>(v<\/em>)<\/span> of the proviso occurring after sub-clause (viii<\/em>) of clause (2<\/em>) of the said section provides that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family not exceeding fifteen thousand rupees in the previous year shall not be treated as perquisite in the hands of the employee.<\/span><\/p>\n It is proposed to omit the said clause (v<\/em>).<\/span><\/p>\n This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent years.<\/p>\n From memorandum explaining proposals:<\/strong> <\/strong><\/p>\n Standard deduction on salary income<\/strong> <\/strong><\/p>\n Section 16, inter-alia, provides for certain deduction in computing income chargeable under the head “Salaries”. it is proposed to allow a standard deduction upto Rs 40,000\/- or the amount of salary received, whichever is less. Consequently the <\/strong>present exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn.<\/span><\/strong> <\/strong><\/p>\n These amendments will take effect from <\/strong>1st April, 2019<\/strong> and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years. [Clause 7 & 8]<\/strong> <\/strong><\/p>\n From budget speech of the FM:<\/strong> <\/strong><\/p>\n Relief to salaried taxpayers<\/strong> <\/p>\n 151. The Government had made many positive changes in the personal income-tax rate applicable to individuals in the last three years. Therefore, I do not propose to make any further change in the structure of the income tax rates for individuals. There is a general perception in the society that individual business persons have better income as compared to salaried class. However, income tax data analysis suggests that major portion of personal income-tax collection comes from the salaried class. For assessment year 2016-17, 1.89 crore salaried individuals have filed their returns and have paid total tax of Rs 1.44 lakh crores which works out to average tax payment of Rs 76,306\/- per individual salaried taxpayer. As against this, 1.88 crores individual business taxpayers including professionals, who filed their returns for the same assessment year paid total tax of Rs 48,000 crores which works out to an average tax payment of Rs 25,753\/- per individual business taxpayer. In order to provide relief to salaried taxpayers, I propose to allow a standard deduction of Rs 40,000\/- in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.<\/span> However, the transport allowance at enhanced rate shall continue to be available to differently- abled persons. Also other medical reimbursement benefits in case of hospitalization etc., for all employees shall continue. Apart from reducing paper work and compliance, this will help middle class employees even more in terms of reduction in their tax liability. This decision to allow standard deduction shall significantly benefit the pensioners also, who normally do not enjoy any allowance on account of transport and medical expenses. The revenue cost of this decision is approximately Rs 8,000 crores. The total number of salaried employees and pensioners who will benefit from this decision is around 2.5 crores. <\/p>\n Unquote: <\/p>\n Apparent anomaly: <\/p>\n As per Clause 8 of the FB, that is as per proposed amendment clause (v) of proviso (exempted perquisites) is to be omitted. This clause relates to only medical reimbursement up to Rs.15000\/-. The notes on clauses also says about omission of this clause only. <\/p>\n Therefore, there seems some drafting error in proposed clauses in the FB vis a vis the Speech and Memorandum. <\/p>\n What is given by one hand is taken back by other hand: <\/p>\n Earlier a deduction under section 16 (i) of the I.T.Act, which was popularly called as standard deduction was allowed against salary income. However, same was phased out and from assessment year 2006-07 no such deduction is allowed. <\/p>\n Earlier deduction of Rs.30000 was allowed. FM has proposed Rs.40000 ignoring the fact that during last ten years inflation as well as salaries have gone up by 250 to 500 per cent, just on consideration of seniority and ignoring efficiency and productivity, as generally happen in government departments.. <\/p>\n If transport allowance and medical reimbursement both are withdrawn then there will be hardly further deduction of about Rs. seven to ten thousand only for any of employee. This is very small deduction. <\/p>\n We find standard deduction proposed is in very simple term. As per proposal irrespective of amount of taxable salary the assessee will be entitled to get a deduction of Rs.40,000 or taxable salary whichever is less. Thus suppose if a person has worked for few days or months and his salary is just 40,000 for a previous year, then he will be entitled to deduction equal to salary being the same amount. If his salary is less say Rs.30,000 the deduction shall be restricted to Rs.30,000. If salary exceed amount of Rs.40,000, the deduction shall be restricted to Rs.40,000.<\/strong><\/p>\n Standard deduction should be linked to amount of salary because with increase in salary, expenses in connection with employment also increases. Therefore, a provision can be made to allow deduction equal to 10% of salary subject to maximum of Rs.200000. <\/strong><\/p>\n CA Dev Kumar Kothari has argued that there is a drafting mistake in the Finance Bill 2018<\/a> relating to the grant of standard deduction. He has explained what that mistake is and offered suggestions on how it can be rectified<\/p>\n\n
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