A professionals like doctor, chartered accountant (CA) or advocate is allowed an implied standard deduction of 50 percent of his gross receipts provided it doesn’t cross the Rs 50 lakh mark in a financial year. In other words, for a professional with gross receipts of Rs 50 lakh, the taxable income from profession is just Rs 25 lakh.
No need to produce books evidence of expenses so long he hasn’t suppressed his gross receipts. This is a godsend for professionals. This regime is enshrined in Section 44ADA of the Income-tax Act, 1961.
Against this backdrop, let us see what the salaried class gets by way of explicit standard deduction under Section 16. Last year it was grudgingly reintroduced by Finance Minister Arun Jaitley conferring a flat Rs 40,000 or salary whichever is less. In the interim Budget 2019, Finance Minister Piyush Goyal has increased it to Rs 50,000 or salary whichever is less from the assessment year (AY) 2020-21.
Standard deduction for the salaried class in its new avatar is one-size-fits-all — it is the same for both the CEO of a company and his lowly minion at the bottom of the heap. Jaitley had made it clear that he was reintroducing standard deduction for the salaried class on the condition that transport allowance up to Rs 1,600 per month, which was tax-free hitherto, would suffer tax and all medical reimbursements or direct payment to hospitals etc by the employer on behalf of his employees and families would also be taxable.
Why does the government stiffen its stance against the salaried class when it is the most law-abiding in terms of tax payment without any wiggle-room whatsoever? Standard deduction is needed more by a low-level employee than by those who are in any case taken care of by company expense accounts or perquisites given the fact that it had its origins in meeting the employment-related expenses of employees.
A CEO gets a chauffeur-driven car. Yet he gets the same standard deduction given to a poor woman, who comes to office in a crowded public transport vehicle.
Let us take the example of a lawyer, who runs a tight ship, employing just two clerks whom he pays Rs 20,000 each per month with no other major expenses since he operates from the comfort of his home. His turnover is Rs 50 lakh. Even though his only major expense is Rs 4.80 lakh by way of salary, he is deemed to have spent Rs 25 lakh for earning his Rs 50 lakh.
Of course he would be spending on his own conveyance and travel also but they are not likely to add up to Rs 25 lakh. The short point is why does the government discriminate between this person and his munshi or clerk? The discrimination is stark. In the example on hand while the lawyer gets Rs 25 lakh standard deduction, his clerk gets a measly Rs 40,000 from his salary income of Rs 2.40 lakh which is going to be increased to Rs 50,000, come AY 2020-21.
It is sad to note that successive governments, at their wits’ end in foiling tax evasion by businessmen and professionals, have chosen to capitulate to them with schemes such as the one enshrined in Section 44ADA while grudgingly throwing crumbs at the salaried class which is the best tax-complier, thanks to the no-nonsense regime of TDS which shifts the onus of tax-compliance onto the employers.
The regime of standard deduction for the salaried class must be rationalised. This can happen only if it is given on a sliding scale i.e. greater percentage of salary on the first Rs 5 lakh followed by progressively lower percentages on incremental slabs of salary. Employees enjoying company cars or getting reimbursement of their running and maintenance bills should be kept out of the standard deduction spoils.
(The writer is a senior columnist and tweets @smurlidharan)
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Updated Date: Feb 08, 2019 14:14:36 IST