The employees get standard deduction from their salary or pension as under for assessment year 2003-2004. Accounting year 1-4-2002 to 31-3-2003.

A standard deduction restricted to 1/3 of the salary or Rs.30,000, whichever is less for tax payers with gross salary below Rs.1,50,000. However, the standard deduction is restricted to Rs.25,000 and Rs.20,000 for tax payer with gross salary between Rs.1,50,000 to Rs.3,00,000 and between Rs.3,00,000 to 5,00,000 respectively. No standard deduction is available to a taxpayer where gross salary exceeds Rs.5 lacs.

CONVEYANCE & ALLOWANCE TAX FREE :

Almost all salaries employees in the organized sectors are granted a conveyance allowance which is exempt from tax, subject to ceiling of Rs.9600.

In the year 1974-75, Standard Deduction was Rs.500/-, which has increased to 331/3% of salary as stated above. The argument that salaries tax payers pay substantial income tax is not correct only 35% of income tax revenue come from salaries class and 65% of revenue come from self employed class. It is interesting to note that there are 2 crores 79 lacs organized employees but only one crore 10 lacs file their returns. It may be that they go out of tax net due to standard deductions and deductions under section 80L, 88, 88B and 88C of I. T. Act. The second reason is that a large number of perquisites which are available to salaries employees are either concessionally treated or fully exempted, thereby substantially reducing the effective tax burden on the salaries employee.

NO STANDARD DEDUCTION IN FOREIGN COUNTRIES:

In following countries, there is no Standard Deduction given to salaried class mainly: -

(i) Bangladesh	(vii) Netherlands
(ii) Singapore	(viii) Argentina
(iii) Italy	(ix) Peru
(iv) New Zealand	(x) Australia
(v) Sri Lanka	(xi) United States
(vi) Philippines	(xii) Canada

 

ESTIMATED INCOME :-

There are about 38 lacs Central Government employees and about 38 lacs pensioners and they take away 33,000 crores salary and 24,000 crores as pension and standard deduction is given to the Central Government employees and also to Central government pensioners and standard deduction is given to 2 crores 79 lacs organized employees. On deletion of Standard Deduction almost all organized employees will have to file income tax returns and estimated additional income tax can be to the extent of Rs.7,000 crores per year. At present, one crore ten lacs employees file their returns.

BUDGET OF 2003 :-

It is unfortunate that in the Budget of 2003, The Finance Minister did not take steps to increase the revenues and granted concessions namely :-

Standard Deduction increased to 40% from 331/3% in the some cases and allowed standard deduction for income above Rs.5,00,000 (five lacs only).