FB - SALARY - IS THERE MISTAKE IN CLAUSES vis a vis Budget Speech and memorandum?

[CA DEV KUMAR KOTHARI]

Links and references:

Present sections 16 and 17 of the Income-tax act,1961

Clauses 7 and 8 of FB

 Budget speech paragraph -151

 Memorandum about clauses 7 and 8 of FB

Earlier article dt. 03.0.2018:

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

Earlier Article dt.101017:

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

Apparent anomaly:

As per Clause 8 of the FB, that is as  per proposed amendment clause (v) of proviso ( exempted perquisites)  is to be omitted. This clause relates to only medical reimbursement up to ₹ 15000/-. The notes on clauses also says about omission of this clause only.

However, in the memorandum explaining   budget proposals it is stated  as follows:

 ….. . Consequently the present exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn.

In the budget speech also the FM in paragraph  has inter alia stated as follows;

“….. I propose to allow a standard deduction of  Rs 40,000/- in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.

Therefore, there seems some drafting error in proposed clauses in the FB vis a vis the Speech and Memorandum.

Let us have a look on the existing relevant provision, as referred to in clauses and notes which are also  necessary to consider effect of  amendment. Relevant portion of S.17  is reproduced below:

"Salary", "perquisite" and "profits in lieu of salary" defined.

     17. For the purposes of sections 15 and 16 and of this section,-

Xxxx

(2) "perquisite" includes-xxx

(viii) the value of any other fringe benefit or amenity as may be prescribed:]

     [Provided that nothing in this clause shall apply to,-

(v) 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 [other than the treat­ment referred to in clauses (i) and (ii)]; so, however, that such sum does not exceed fifteen thousand rupees in the previous year;

Unquote:

Therefore, we find that the clause (v)  to be omitted is only about medical re-imbursement and is not related to transport allowance.

Therefore, there is apparent difference between proposed clauses and notes thereon vis a vis speech of the FM and memorandum to explain the clauses.

Author hopes he has not omitted or otherwise mistaken to consider some clause of present provisions and proposed clauses in this regard.

 

Proposal is reproduced below with highlights added:

From the 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.

From memorandum explaining proposals in FB:

Standard deduction on salary income

Section 16, inter-alia, provides for certain deduction in computing income chargeable under the head “Salaries”. it is proposed to allow a standard deduction upto ₹ 40,000/- or the amount of salary received, whichever is less. Consequently the present exemption in respect of Transport Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn.

These amendments will take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.

[Clause 7 & 8]

Relief to salaried taxpayers

151. The Government had made many positive changes in the personal income-tax rate applicable to individuals in the last three years. Therefore, I do not propose to make any further change in the structure of the income tax rates for individuals. There is a general perception in the society that individual business persons have better income as compared to salaried class. However, income tax data analysis suggests that major portion of personal income-tax collection comes from the salaried class. For assessment year 2016-17, 1.89 crore salaried individuals have filed their returns and have paid total tax of ₹ 1.44 lakh crores which works out to average tax payment of  Rs 76,306/- per individual salaried taxpayer. As against this, 1.88 crores individual business taxpayers including professionals, who filed their returns for the same assessment year paid total tax of  Rs 48,000 crores which works out to an average tax payment of  Rs 25,753/- per individual business taxpayer. In order to provide relief to salaried taxpayers, I propose to allow a standard deduction of  Rs 40,000/- in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. However, the transport allowance at enhanced rate shall continue to be available to differently- abled persons. Also other medical reimbursement benefits in case of hospitalization etc., for all employees shall continue. Apart from reducing paper work and compliance, this will help middle class employees even more in terms of reduction in their tax liability. This decision to allow standard deduction shall significantly benefit the pensioners also, who normally do not enjoy any allowance on account of transport and medical expenses. The revenue cost of this decision is approximately  Rs 8,000 crores. The total number of salaried employees and pensioners who will benefit from this decision is around 2.5 crores.