Manishinath Bhawan,A/2/95 Rajouri Garden
New Delhi. 110 027
Phone: 2510 5324
D-16/2/2009 Dated: 14.06.2009.
Shri Pranab Kumar Mukherji,
Hon'ble Finance Minister,
Govt. of India,
New Delhi. 110 001.
Sub: Restoration of the deduction under Section 16(1) of the Income-tax Act. Withdrawn by the Finance Act, 2005. Request –
We submit the following Note for your kind consideration on the above subject. The Finance Act 2005 had withdrawn the deduction admissible under Section 16(1) of the Income tax Act, to the salaried tax payers of the country. We were unable to comprehend the logic or reasoning of this decision. We had been representing for the restoration of this deduction which would go a long way in reducing the tax burden of the salaried tax payers. The unjustified withdrawal of this deduction which had been in the statute book for more than a decade and half in one form or the other has resulted in increasing the tax burden of the wage earners..
We may also state in this connection that the salaried tax payers do pay their taxes to the Government without indulging in any evasion or avoidance and the tax on the salary earned by them is properly deducted at source by the employer. While the expenditure incurred by every tax payer in the country for the purpose of earning the income is allowed as an admissible deduction, no such deduction is now permitted while computing the taxable income from salary. Only the salaried tax payers are taken out of the ambit of this logical and genuine approach of taxation of income. We, therefore, request your goodself on behalf of not only the Central Government employees but all salaried class of tax payers in the country to kindly consider re-introduction of the standard deduction which was to the extent of 30% of the total salary income of an individual. The enclosed Note presents the justification for the consideration of this request
Section 16(1) Deduction.Standard Deduction earlier allowed under Section 16(i) of the Income Tax Act, 1961 was withdrawn by the Finance Act 2005 with effect from the Asst. Year 2005-06. The basic premise on which the principle of taxation of income rests is that, it is not the gross income which is subjected to tax, but the net income arrived at after deducting the related expenses incurred in connection with earning such income, that are made the basis of taxation. This principle is observed while taxing all classes of incomes, viz., Income from Business & Profession, House Property, Other Sources, Capital Gains etc..
To illustrate the point further it could be seen that the assessees having Income from "Business & Profession" is entitled to deductions in respect of certain specified expenditure under Section 36 of the Income Tax Act and also general deductions in respect of any other expenditure, not being in the nature of capital expenditure or personal expenditure of the assessee, laid out or expended wholly or exclusively for the purposes of the relevant business or profession u/s 37 of the Act. Similarly, income chargeable under the head "Income from House Property" is computed after making deductions in respect of certain expenses incidental to earning that income, under Section 24 of the IT Act. Analogously, the income chargeable under the head "Capital Gains" has to be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, inter-alia the expenditure incurred wholly and exclusively in connection with such transfer, in terms of Section 48(i) of the I.T. Act and the income chargeable under the head "Income from Other Sources" has also to be computed after making deductions in respect of certain expenditure incidental to earning that income in accordance with Section 57 of the I.T. Act. In the case of income chargeable under the head "Salary", only a presumptive deduction used to be allowed earlier towards expenses which the employee might have incurred for earning the salary income, in the form of Standard Deduction under Section 16(i) of the IT Act. This was withdrawn by the Finance Act 2005 and unfortunately, the Finance Act, 2006 or the subsequent one did not reintroduce the Standard Deduction in spite of various representations made before the Govt. from various quarters of the employees including the Service Associations
From the above, it would transpire that the Finance Act 2005 singled out the income chargeable under the head "Salary" to take away the deductions legitimately admissible for the expenses, which is wholly and exclusively incurred for earning the salary income. This is a clear case of deviation from the principle of equity enshrined in the Constitution and also the principles of taxation of income enshrined in the Income Tax Act which continues till its abolition in 2005. Ironically, identical Standard Deduction granted under Section 57(iia) in the case of income in the nature of family pension has been allowed to continue as such, while the Standard Deduction allowable in respect of income under the head "Salary" has been done away with. This is clearly discriminatory, unjust and as such should be restored in the Finance Act 2009 so as to bring about equity and justice.
Secretary General. Confederation