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Govt must reintroduce Standard Deduction 30 January 2013

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.

© 2012 Centre for Tax Awareness and Research Design and Developed by

During my 37-year-old career with Income Tax department, I moved from place to place, post to post. For me, every posting was a challenge, and at the same time an opportunity to deliver.

After my retirement as Chairman of Central Board of Direct Taxes, I was invited by various institutions and NGOs to deliver talks on tax matters. While advising taxpayers across sectors, I noticed, our vast salaried class including armed and paramilitary forces, pensioners or senior citizens, NRIs, professionals and small business establishments need the right guidance. Most taxpayers do comply with their tax obligations fully. Yet, they are not somehow relaxed and are burdened with anxieties. A large number of taxpayers are not even aware that getting tax refund on time is a basic right.

In one such meeting, a middle-aged man quizzed me why could not I give tax advice 24X7. For a moment, I had no answer. He then added that I should give tax solutions online so that he does not need to come from a remote place to attend my lecture. I thanked him for his suggestion.

For a while I was restless. Already I had got myself enrolled as a Member of the Bar Council of Delhi and as an Advocate of Delhi High Court Bar Association, thanks to my law degree from the University of Allahabad. Yet, I was not sure how I could help the vast majority of taxpayers who somehow maintain a safe distance from the taxmen. I then tossed the idea of creating a tax think-tank with some of my former colleagues and highly spirited individuals. All of us immediately agreed on one count: millions of Indian taxpayers expect to access tailor-made tax research materials and seek guidance from those who have been parts of the tax machinery for decades.

That is how CTAR was born. So, be a part of our passionate journey to explain tax laws and rules in simpler words. Just drop us a few lines on any query related to direct and indirect tax or FEMA. We are at your assistance. We also look forward to hearing your experiences while dealing with the system.