For computing the taxable income, except salary, under all other heads, namely ‘Income from house property’, ‘Profits and gains of business or profession’, ‘capital gains’, ‘Income from other sources’, all the expenses incurred wholly and exclusively for earning the income are allowed as a deduction. On the contrary, the salaried employees, who constitute a huge chunk of the total taxpayers in our country, are taxed on the gross salary receipts. This is discriminatory. CTAR is of the view that if this issue is raised before a court of law, the court may quash the law regarding denial of deduction. Whereas a businessman is in a position to claim expenses incurred towards running of car, interest on car loan, driver’s salary etc. as legitimate business expenditure, the salaried taxpayer has no such option though he uses his car for going to office, which he may have purchased by taking a loan from the bank. A salaried taxpayers has to necessarily incur expenses on books, computers, internet to remain competitive. He spends money even on tea and snacks to visitors lest he will be called uncivilised and discourteous. He thus feels discriminated vis- a- vis other taxpayers.
Even under the old Act (I. T. Act 1922), expenses for earning salary income were allowable. It was up to Rs 500 for purchase of books and other publications necessary for the purpose of duties. Further, deduction of 1/5th of the salary or Rs 7,500 whichever is less, was allowed. In addition to this, any amount actually expended by the salaried taxpayer in the performance of his duties was also allowed as a deduction. The deductions were based on the principle that the expenses incurred wholly and exclusively for the purpose of earning income are allowable. These deductions continued in the I. T. Act 1961.
The Finance Act 1974 brought changes in section 16 of the I. T. Act 1961 to provide standard deduction to replace the provisions relating to separate deductions in respect of travelling, purchase of books and expenses incurred during the performance of duty. This was done for rationalization and simplification. In tune with the inflationary pressure, the amount of standard deduction, towards expenses incurred for earning the salary, was changed from time to time.
Standard deduction allowed up to financial year AY 2005-2006 was as under:
a) In case of Income from salary up to 5 lakhs: 40% of the salary or Rs 30,000 whichever Is less
b) In case of Income from salary exceeding Rs 5 Lakhs: Rs 20,000
On the recommendation of the Kelkar Panel, clause (i) of section 16 providing for Standard Deduction was omitted by the Finance Act 2005, i.e. from the financial year 2006-2007.
CTAR is of the view that the withdrawal of standard deduction is grossly unfair, unjust and inequitable. It is also not in conformity with the international practices. Countries such as UK, France, Germany, Malaysia, Indonesia etc. allow deduction against the salary income.