Restore standard deduction for the salaried, pillar of the state’s tax efforts

At one level, it might seem illogical for this paper to argue the case for restoration of standard deduction for salaried employees. At a time when declining tax revenues — the Centre’s tax/GDP ratio is currently just 10.3%, down from close to 12% in 2007-08 — are a major source of concern for the government, why allow yet another deduction that will impact overall tax collection adversely? The simple answer: the logic of equity. Standard deduction refers to the facility allowed to the salaried to deduct a specified — or standard — amount from the taxable salary. It is an attempt to bring some rough parity in tax treatment between the salaried and selfemployed, professionals and businessmen, all of whom are allowed to set off their business-related expenses and pay tax on their net income. The salaried class, in contrast, is not allowed any such deduction though it is inconceivable that they would not be incurring expenses that are job-related, such as purchase of books, computers, fuel, etc. Despite this unexceptionable logic, the government scrapped standard deduction for the salaried in 2005 even as the non-salaried continued to get the benefit of set-off against their business expenses. Though many among the salaried protested at the resultant inequity in tax treatment, the government turned a deaf ear.

Now is the time to make amends. The salaried class is, perhaps, the only segment of society that has been faithfully paying its taxes. Maybe because their taxes are largely deducted at source, but even so, their contribution to the tax kitty cannot be ignored. Any more than the grim reality that, apart from government employees whose salaries are protected against inflation, persistent inflation has reduced their salary in real terms! In such a scenario, restoration of standard deduction would be a much-deserved welfare measure. After all, standard deduction is not unique to India. Many other countries allow their salaried class to opt between claiming a standard deduction and deducting certain specified expenses before paying tax. There is no reason why we should be different.