Amendment relating to salary- standard deduction (40K) allowed and certain medical reimbursement made taxable perquisite

[CA DEV KUMAR KOTHARI]

Links and references:

Proposal  to amend S.16 and 17

Earlier Article webhosted on 10^th October 2017:

Budget 2018 REQUEST FOR RELIEF TO SALARY EARNERS: Relief to wages and salary earners - reintroduce standard deduction and allow depreciation to salary earners–will boost economy also

Earlier article:

In above article author has requested to re-introduce standard deduction and also to allow depreciation on  certain assets owned and used by salary earners for occupation  as employee  and also to keep fit him  for such occupation and also required for welfare of employee and his family. This was for reasoning that such assets , even if used by employee and are owned by him depreciate and require replacement and also  if employer provide such assets to employee, he get depreciation allowance against his income.

Budget proposal:

In budget proposal we find standard deduction proposed to be reintroduced. The proposed amendment is in very simple term. As per proposal irrespective of amount of taxable salary the assessee will be entitled to get a deduction of ₹ 40,000 or taxable salary whichever is less.  Thus suppose if a person has worked for few days or months and his salary is just  40,000 for a previous year, , then he will be entitled to deduction equal to salary being the same amount. If his salary is less say ₹ 20,000 the deduction shall be restricted to  ₹ 20,000.

If salary exceed amount of ₹ 40,000, the deduction shall be restricted to ₹ 40,000

With the proposal an exemption from taxable perquisite allowed up to ₹ 15000 for medical re-imbursement (even without hospitalization) is being withdrawn by amending S.17

Therefore, a salary earner was getting benefit of ₹ 15000 for medical re-imbursement will in fact only get additional benefit of  ₹ 25000

Further benefit is desirable:

As discussed in earlier article, standard deduction should be linked to amount of salary because with increase in salary, expenses in connection with employment also increases. Therefore, a provision can be made to allow deduction equal to 10% of salary subject to maximum of ₹ 200000.

Depreciation on assets used in relation to employment should also be allowed.

Proposal is reproduced below with highlights added:

Statutory Provisions

THE FINANCE BILL, 2018

7. Amendment of section 16.

In section 16 of the Income-tax Act, after clause (i) [as omitted by section 6 of the Finance Act, 2005 (18 of 2005)], the following clause shall be inserted with effect from the 1st day of April, 2019, namely:––

“(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less;”.

 Explanatory memorandum:

Clause 7 of the Bill seeks to amend section 16 of the Income-tax Act relating to deductions from salaries.

The existing provisions of the said section, inter alia, provide that the income chargeable under the head "Salaries" shall be computed after making certain deductions specified therein.

It is proposed to insert a new clause (ia) in the said section so as to provide for deduction of forty thousand rupees or the amount of the salary, whichever is less, for the purpose of computing the income chargeable under the said head.

This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent years.

8. Amendment of section 17

In section 17 of the Income-tax Act, in clause (2), in the proviso occurring after sub-clause (viii), clause (v) shall be omitted with effect from the 1st day of April, 2019.

Clause 8 of the Bill seeks to amend section 17 of the Income-tax Act relating to "Salary", "perquisite" and "profits in lieu of salary" defined.

Clause (v) of the proviso occurring after sub-clause (viii) of clause (2) of the said section provides that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family not exceeding fifteen thousand rupees in the previous year shall not be treated as perquisite in the hands of the employee.

It is proposed to omit the said clause (v).

This amendment will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent years.

Discussions to this article

[Vijay Yadav]

Dear Sir, The article is self explanatory, yet I am a bit confused. The standard deduction includes two components - medical reimbursements and travel allowance. Does it mean that we cannot claim deduction under 80D for amount paid as premium for health insurance ? Or we can claim both the standard deduction and the premium amount ? Thank you.

[DEV KUMAR KOTHARI]

With reference to message of Shri Vijay Yadav , as per my understanding deduction under Chapter VIA are separate a\nd they are allowed from GTI. Therefore, eligible deductions under chapter VIA includign u/s 80D for eligible amount of medical claim insurance/ health insurance can be claimed by salaried persons besides standard deduction u/h salary.