Salaried Indians don’t need big hike in standard deduction, says finance ministry
The purpose of the article was to bring about the stark contrast between the two income-earning classes, not to question the expenses legitimately allowed to consultants.
The article states that a salaried individual pays a tax of Rs 6.73 lakh on total gross salary of Rs 30 lakh, whereas a consultant pays a tax of Rs 2.18 lakh on total Gross Professional receipts of Rs 30 lakh. The tax paid on taxable salary income and on gross amount of professional receipts cannot be compared as the taxable income in case of professionals is computed after allowing all the expenses incurred for carrying-out the profession. These expenses include rent for office space, salaries & wages of employees, electricity expenses for the office, printing & stationery etc.
However, in respect of a salaried individual, there is no requirement to maintain any office and the office expenses are borne by the employer. The only major expenses required to be incurred by a salaried individual for earning salary income is the expense incurred for commuting to the office. For this purpose and other miscellaneous petty expenses which a salaried individual might have to incur, a standard deduction is allowed to the salaried taxpayer which is currently Rs. 50,000. Therefore, the net income of the professional is required to be compared with the taxable salary income.
In the given example, it is apparent that the net disposable income after the allowance of all expenditure and deductions in the case of a salaried individual comes to Rs 27,82,600, whereas it is only Rs 13,25,000 in the case of professionals. Further, even after paying the tax, the net disposable income available to the salaried individual is Rs 21,09,429 whereas in respect of a professional, this amount is only Rs 11,06,600. One of the canons of taxation is to levy tax on the basis of ability to pay, and in the instant case, the salaried individual has more than double the ability to pay tax as compared to the professional, and it is this difference in the ability to pay that is reflected in the tax outgo of both.
Further, it may also be noted that to reduce the compliance burden on small professionals, the Income-Tax Act contains a presumptive regime for professionals having gross receipts up to Rs 50 lakh. Under this regime, the professional is not required to maintain books of accounts, but it is presumed that 50% of his gross receipts are expended towards various expenses required to be incurred for carrying out his profession. However, this is not a standard deduction and it has also been provided in the Act that if the professional incurs expenses less than 50% of the gross receipts, then he has to declare the higher income.
In view of the above, a comparison of the tax liability on the basis of gross receipts of a professional and taxable salary income of an individual is like comparing apples to oranges and the conclusion drawn in the article is without appreciating the basic tenet of taxation and the scheme of taxation of salary income and income from profession.
A Note From TOI
The purpose of the article was to bring about the stark contrast between the two income-earning classes, not to question the expenses legitimately allowed to consultants. Over the years, the job profile of most salaried employees has blurred the distinction between office and personal work. They frequently use their homes and personal devices for office work —like accessing and replying to office emails or making official phone calls. But they are not allowed to claim even a small part of money spent on purchase of computer or phone as deduction from income. Such deductions are allowed to salary earners in some countries.
A few deductions that are allowed to salaried taxpayers are woefully short of the current cost of services, as with children’s education. It is for these reasons, among others, that then finance minister Arun Jaitley, in his 2018-19 budget speech, had highlighted the fact that an average salary earner pays three times more income tax (Rs 76,306) than a non-salaried taxpayer does (Rs 25,753) — both figures from the budget speech.