In its Union Budget 2018, the NDA government did not tinker with the tax slabs nor with the rates for individual taxpayers. But for salaried class, standard deduction has been reinstated in lieu of travel allowance and medical reimbursement.
The medical bills of upto Rs. 15000 of an employee was reimbursed by the employers per financial year. Also, a transport allowance of Rs. 19200 for a financial year was also allowed to be paid to employees that shall henceforth be taken away.
The standard deduction provision allowed to salaried class will mean a straight loss of Rs. 8000 crore in revenue for the government.
This has come contrary to the individual and salaried class expectations of a higher income tax exemption limit from the Union Budget 2018 wherein they expected exemption limit to be raised by Rs. 50000 to Rs. 3,00,000 against the current limit of Rs. 2.5 lakh.
In the last year's budget, govt. reduced the tax rate for individuals with annual income between Rs. 2.5- 5 lakh to 5% from the earlier 10%. The rebate provided as part of Section 87A of the Income-tax Act, 1961 was brought down to Rs. 2500 from Rs. 5000 for those individuals with income in the range of Rs. 2.5 lakh to Rs. 3.5 lakh. Hence, rendering the tax liability for those with income upto Rs. 3 lakh to be Nil.
Understanding Standard deduction impact on your tax liability
It is suggested that with increase in cess from the current 3% to 4% and withdrawal of other allowances plus providing for standard deduction provision, only individuals in the income slab of Rs. 2.5 lakh to Rs. 5 lakh will be able to save tax. Rest all in the higher income group will only need to shell out more after taking into account standard deduction.