The Case for Higher Standard Deduction from the Union Budget 2021

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January 27, 2021: In July 2019, the finance minister Nirmala Sitharaman had presented her union budget, which was the first Budget of the Second term of the NDA. She had raised the standard deduction of paid employees from to 50,000 from 40,000. 

Union Budget



   

What is this standard deduction and why is it important? This deduction is a fixed amount that is deducted from an individual’s taxable income. 

It can be done by the government in order to hand more money to the taxpayer, especially after the Covid-related lockdowns, and a significant increase in this standard deduction is required. 

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The Budget that was presented in February 2020 managed to eliminate the standard deduction for all taxpayers who chose to enter a new tax regime. These tax slabs were 5-10% lower than the former tabs and at the lower end of the income sale. The tax rate remains the same for the higher end, which is considered at Rs.15 lakh and above. 

In an earlier article written in July 2019, it was discussed how the deduction schemes and income tax rules are skewed against salaried employees. The tax is always deducted by the employers, therefore curbing the salary taken home by the employees. 

The finance ministry had disagreed with the content of the July article and had issued a written response soon after.



“The tax paid on taxable salary income and on gross amount of professional receipts cannot be compared as the taxable income in case of professionals is computed after allowing all expenses incurred for carrying out the profession. These expenses include rent for office space, salaries, electricity expenses for the office, printing and stationery etc. 

However, in respect of a salaried individual, there is no requirement to maintain any office and the office expenses are borne by the employer. The only major expenses required to be incurred by a salaried individual for earning salary income is the expense incurred for commuting to the office. For this purpose and other miscellaneous petty expenses which a salaried individual might have to incur, a standard deduction is allowed to the salaried taxpayer which is currently Rs.50,000.”

Union Budget 2020-21 Of India

The article was not written to highlight the legitimate expenses allowed to employees, rather to discuss the few selective options offered to claim equal legitimate expenses. This situation is highlighted again in the recent times where everyone was employed at work from home, but employees were not even allowed to claim any money on the money spent in setting everything up at home. 

The deductions that have been allowed are unrealistic and way-less significant than the original cost of these services. 



Then comes the presumptive tax scheme; under this, professionals are allowed to file a return of 50% of their gross returns. This tax does help smaller and medium-sized professionals but it has also created a disparity between professionals and consultants. 

The former Finance Minister, Arun Jaitley, saw this in a different light and had pointed out the fact that a salaried employee tends to pay thrice the tax amount than a non-salaried taxpayer. 

Is this year’s Union Budget bound to consider the fact that most employees were settled at home and had to bear expenses of the infrastructure on their own? The finance ministry’s step regarding this matter is the most awaited as this current situation is likely to prevail for a long time. 

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