After being abolished in fiscal year (FY) 2005-06, the standard deduction for salaried taxpayers was reintroduced at Rs 40,000 beginning in fiscal year (FY) 2018-19, in lieu of the elimination of tax exemptions of Rs 19,200 for transportation and Rs 15,000 for medical reimbursement.
The deduction limit has been enhanced to Rs 50,000 from the fiscal year 2019-20 onwards.
The amount of deduction is quite minimal, given the recurring cost of inflation over time and current living expenditures of paid workers. Since the Covid-19 outbreak, growing medical costs and work-from-home expenses including furniture, energy, and the Internet have had a detrimental influence on household budget.
As a result, the current 50,000 rupee standard deduction limit should be increased to at least Rs 75,000 rupees. Individuals will have a financial safety net in place to help them get through these difficult times.
In addition, many countries, including the United States, the United Kingdom, Canada, and Ireland, have enacted tax deductions for Covid-19-related medical expenses (such as medical supplies, testing kits, and so on) as well as work-from-home expenses (such as home office setting).
However, no similar deduction or exemption has yet been adopted in India. As a result, increasing the standard deduction ceiling would provide individuals with more financial freedom when it came to incurring the aforementioned expenses.
Furthermore, taxpayers who elect the concessional optional regime under section 115BAC of the Income Tax Act of 1961 may be entitled for the standard deduction.
The standard deduction is a deduction from gross pay income that is allowed for paid individuals and pensioners. This deduction reduces a person’s taxable salary income, therefore cutting his or her tax burden.
The necessity for a tax deduction for children’s higher education savings
Everyone has a financial goal of saving for their child’s higher education, and most individuals set aside a portion of their salary for this purpose. There is currently no stated deduction or exemption for such monies, with the exception of the Sukanya Samriddhi Yojana, which is particularly for a girl child. The tax benefits are also small because the deduction is consolidated within the section 80C limit of Rs 1.5 lakh per year.
Other tax-saving investments/expenditures (such as Employees’ Provident Funds, Public Provident Funds, home loan debt repayment, children’s tuition fees, National Funds Certificates, and so on) are covered by this deduction, leaving limited room for higher education savings to be claimed.
In this direction, a separate deduction of at least Rs 1.5 lakh for school funding would be a welcome gesture. To prevent misappropriation of funds, the account proceeds (including any interest generated) may be paid directly to educational institutions as soon as the child is approved for further study.
Alternatively, the education expense deduction (which includes tuition fees) might be split from the section 80C deduction and treated separately.