NEW DELHI: The Centre is mulling raising the standard deduction limit for salaried taxpayers from the current Rs 50,000 to about Rs 60,000-70,000 per year. The increase is being considered since salaried taxpayers, who have been the most loyal contributors to the country’s exchequer, are believed to have also suffered the most during the pandemic in terms of jobs losses, wage cuts, and longer work hours out of home. “Wage earners also show high propensity to consume when given tax reliefs,” noted a top finance ministry official.
The government is also considering proposals to increase deductions for medical insurance, officials said.
“The move makes sense since when standard deduction was re-introduced in 2018, it was done at the cost of various allowable deductions… so it was not a big step in helping the middle class.
Increases to take care of retail inflation and hardships makes sense,” said S K Sarkar, FCA, past president of the Indo-American Chamber of Commerce. Officials said that they believed that for every rupee given as a tax credit, the middle class tended to spend about 80 paise of it.
The NDA government has a large middle class voter base and while Covid sops have been given to the poor, farmers, and to small businesses, few steps have been taken to help out the middle class, say analysts. Hence the move also makes political sense, they point out. The demand for raising standard deduction has come not only from chartered accountants but also industry and members of the BJP party, according to sources.
A standard deduction is given to the salaried class in lieu of deductions which businessmen and consultants claim for their expenses. This deduction was done away in 2004-2005 as part of a bid to weed out various exemptions and make the taxation process simpler. However, it was brought back after the NDA came to power while subsuming other tax-deductible allowances such as for transport and medical reimbursements—initially for Rs 40,000 and later raised to Rs 50,000 per annum.