Fresh out of the pandemic, India’s salaried class did not get much from Union Budget 2022-23. This year, many hope that Finance Minister Nirmala Sitharaman, in her fourth budget for the upcoming financial year 2023-24, will give some relief to hard-working jobbers given a high-inflation environment in the post-pandemic economy.
For the upcoming budget, tax experts have recommended an increase in Standard Deduction for tax calculation available on the gross salary of salaried employees. Experts say Finance Ministry must provide some kind of tax incentives for the salaried class, which is witnessing an erosion of savings due to increased transport, rent and other costs due to the reopening of offices. Some companies asked their employees to vacate their rented accommodations and go back to their hometowns, anticipating continued work-from-home mandates. But as the pandemic receded, most of the companies are calling employees back, forcing such workers to rent accommodations in cities where their offices are located.
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Those returning to their office towns are finding that costs have gone up for everything from rent to transport to groceries. Standard Deduction needs to be updated to reflect the new post-pandemic realities.
What is Standard Deduction?
All tax deductions are incentives given by the government to enable the taxpayer to claim relief on certain expenditures. Standard Deduction of Rs 40,000 was reintroduced in Union Budget 2018-19 in lieu of transport and medical allowances for salaried individuals. Before that, transport allowance and medical allowance of Rs 19,200 and Rs 15,000 were available to salaried individuals to claim as relief from their taxable income. Cumulatively, this meant a deduction of Rs 34,200.
The introduction of Standard Deduction was increased to Rs 40,000 and then to Rs 50,000 in the subsequent budgets. It is a flat amount deducted from the gross salary, which reduces the overall taxable income of a taxpayer, thereby reducing the tax burden. It is deducted from the gross salary of an employee and claimed as an exemption without any proof of expenses.
Union Budget 2023-24: Standard Deduction for salaried class must be increased
The personal income tax rates have remained unchanged for the middle class in the three years. In the previous year, the government introduced the ‘simplified tax regime’ as an alternative that provided reduced tax rates but denied many of the deductions and exemptions that were enjoyed by salaried individuals. It is expected this year the government would extend clear tax reduction at least at the lower-income group to improve cash flows. Increased standard deduction An increase in the standard deduction for employees would have a direct bearing on the tax outflow. Given that the employees may not be able to claim much of the exemptions available under house rent allowance, food or car benefits on account of remote working, increasing the standard deduction will help improve the take-home pay.
