Modi's next big tax reform after GST could be for the salaried class

BY NAYANTARA RAI, ET NOW 

The next big tax reform from the Modi government after GST could be a big bonanza for the salaried employees. 

Sources tell ET Now that the Centre is looking at a mega reform to ease salary structures and give a "generous" standard deduction in the form of tax-free expense to salaried employees. The Prime Minister's Office and the Finance Ministry are finalizing the quantum for this. 

If not announced in Budget 2018, Finance Minister may, in his speech, highlight the intent of moving to such a mechanism for salaried employees. "Today as a policymaker, the finance minister understands it is the salaried class and not those in business who need relief when it comes to personal income tax," says a senior government official. 

Giving a "generous" standard deduction to salaried employees would create parity with non-salaried assesses. 

For example, businessmen have the advantage of claiming tax-free expenses such as office rent, driver salaries, official entertainment, travel etc. But salaried taxpayers cannot claim such expenses. What's more, salaried employees also pay out of their own pocket for higher skills or signing up for a magazine subscription. 

They also have to deal with cumbersome procedures to claim LTA or HRA. "Should the finance department in an office be asking an employee why he or she flew economy and did not travel by train? We need to revisit LTA. Even the House Rent Allowance is outdated as is the annual Rs 15,000/annum medical expense and not at all in sync with market realities," a govrnment official told ET Now. 

It is yet to be decided if the standard deduction would immediately subsume LTA, HRA etc, or if it would be over and above these existing deductions. 

"For standard deduction to be effective and actually be at parity with business professionals, then it should be at flat 10% of gross salary," Tax expert TP Ostwal told ET Now. 

The standard tax deduction used to be in existence till 2006, but was withdrawn by then finance minister P Chidambaram. At that time, the standard deduction was Rs 20,000 a year for a salary above Rs 5 lakh. 

Source:-The Economic Times