CMA Arif Farooqui

As next year budget is just round the corner, everyone is expecting something from Finance Minister but we should understand, he has some limitations due to heavy fiscal deficits.

There are numbers of points which we are expecting from this budget but I would limited my article to points which affecting salaried persons, as they are the most honest person in matter of payment of income tax.  It will be great relief for salaried person, if Finance Minister considers following point in current year budget.

Standard Deduction must be back – Till Assessment Year 2005-06, there was standard deduction for salaried employees. In this period of inflation, government must allow standard deduction to salaried employees once again.

Maximum exemption limit must be increased – At present it is Rs 2,00,000 per annum i.e. a person earning more than Rs 16,667 per month has to pay income tax.  Looking at the cost of living, running a family in such a small amount is very difficult and government charging income tax from them. Even in DTC, it is recommended to have maximum exemption limit of Rs 3,00,000.

Deduction in Section 80C should be increased – Almost every taxpayer use available maximum Tax benefit under this section (at present Rs 1,00,000) which was set decade ago.  Almost all savings and investments are covered under this section. Deduction limit should be increase to Rs 2,00,000 to provide  some relief to taxpayer.

Education and Hostel Allowances need to be revised – Exemption limit of education allowance and hostel allowance are Rs 100 and Rs 300 per month respectively. At present these allowances seems as a joke, government either increasing the exemption thresholds limit upwards or simply withdraw these exemption.

Medical Reimbursements – At present exemption limit for reimbursement of medical expenses is Rs 15000 annually and it was set in 1998. Since then medical costs have risen radically and this limit seems to be inadequate in present scenario. It should to be revised.

Transport Allowance – Its exemption limit is Rs 800 pm and it was fixed in 1998. Today in cities, on average an employee spend Rs 1500 pm in commuting between his residence and place of duty.  In view of increasing fuel and travelling costs, it should revise upwards to at least Rs 2,000 per month.

Deduction of interest on housing loan should be increased – Everyone has a dream to own a dream home.  Those who can’t afford it, purchase it through housing loan. For a self occupied house, deduction limit is Rs 1,50,000 annually which was fixed several years ago. In present time of high interest cost, limits seem outdated and need to be revised.

Restoration of section 80CCF – Reintroduction of Section 80CCF, under which retail investors can claim an additional tax rebate of Rs 20,000 for investments in Infrastructure Bonds.  It will not only provide some relief to tax payers but also help infrastructure sector to raise funds at cheaper cost (provided they fulfil RBI Norms). 

Definition of Specified Employee – There are many perquisites which are taxable only to specified employees and exempted for non specified employees. But going through definition, I am very sure there is not a single employee (taxpayer) who is non specified.  As per definition, Specified Employees means-

  1.                         i.        Director.
  2.                       ii.        Employee being a person who has substantial interest in company.
  3.                      iii.        Employee to whom provision (i) & (ii) do not apply and whose income under head salary including value of benefit or amenities and after deduction u/s16 exceeding Rs. 50000

Look at the point (iii), an employee who is earning more than Rs 50,000 annually is specified employee.

Leave Salary – Leave salary is exempted at retirement to maximum of Rs 3,00,000 and it too was fixed in 1998. Government had revised maximum exempted amount of gratuity to Rs 10,00,000 from Rs 3,50,000, it may revised this limit too.

Free Food – Value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Looking at present inflation, it should be Rs 100 per meal. 

Interest Free Loan – Interest free/Concessional loan to employees is exempt, where Loan amount does not exceed in aggregate Rs 20,000. It will be good if this limit is revised to atleast Rs 50,000.

Amongst all taxpayer, salaried persons pay their taxes with maximum honesty and Tax Evasion is almost impossible in their cases, so government should give some relief to its loyalist taxpayers. Even if Finance Minister considers 50% of above mention points, 28th February 2013 will be a remarkable day for salaried person.

As I mentioned, due to heavy fiscal deficit, he has limitation, I would like to say, agricultural income is exempt in India but is it justifiable that a rich farmer who has Bungalow, SUVs etc does not pay Income Tax but a salaried person who earns just Rs 20,000 pm and reach his office going through all the torture of public transport, pay income tax?

Lastly I want to draw attention on this point,

On budget day most of us are more worried about new exemption limit of income tax than new tax rate of indirect taxes (Excise Duty, Custom Duty, and Service Tax). Reason may be that we know how much income tax we have to pay but in indirect taxes we don’t know how much tax we have to pay although we pay much more amount as indirect taxes than income tax annually. Even a percentage increase in rate of excise duty or service tax affects our budget daily than Rs 20,000 or Rs 50,000 increase in basic exemption limit of income tax.

On a roughly estimate, only 3.5 % of our population pays income tax whereas every Indian pays indirect taxes even a beggar.  Yes I am saying even beggar pays taxes, for example when a beggar purchases a bidi/cigarette, he pays excise duty, sales tax on it.

So, although my heart is with salaried people but I wish Finance Minister does increase rate of Excise Duty or Service Tax in current budget as it will affect all of us (including salaried people) throughout 365 days of next year. Lets hopes for the best…………….

CMA. Arif Farooqui

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  1. satya says:

    Dear Arif,

    Nice proposal, but nothing happen after delivery of VoA budget 2014-15.

    Hence, you may send your article to Next FM directly (???) for adopting in
    July 2014 New Govt budget.

  2. r v rao says:

    very informative and provokes useful social thinking.
    but iam afraid that in an election year , there will not be any fulfledged budget but only vote on account. since it is a case of vote on account, no ruling govt. can enjoy the luxury of introducing a populist budget to suit its needs and whims.

  3. P ROY says:


  4. K K SARAOGI says:

    I would like to add one more proposal for the finance Bill 2013. Regarding non-Govt. retired employees, the Govt. came out with one pension scheme called as EPF Pension scheme effective from November 1995. At the time the scheme was being argued in the parliament, the Govt. said that the scheme will be subject to review from time to time. However, there has been no amendment to the scheme with regard to increase in payment of pension under the scheme till now. The scheme does not take care of the inflation or the D.A. to which the Govt. retired employees are entitled to. The Govt. should immediately make review of the scheme and grant pension based on the contributions made through the employer over the years along with interest thereon. The scheme should be made similar to the superannuation scheme offered by the LIC.

  5. R.L.Garg says:

    The Finance Minister should have a heart for the Very Old Senior Citizens who has crossed the age of 85 years . they should be totally exempted as they have been paying tax throughout their life earnings. Similaly people falling in the age bracket of 75 to 85 yearts be given concession of atleast 50 % on their calculated tax. If it is adopted there will be handfull persons who will be availing this concession because such old persons either do not have much of the income or are within small brackets. You can say that people may start transfering their funds to such old persons for saving tax. If it is so that too goes in favour of sense of sewcurity of old peoples as no young person will feel them as burden upon them(Young daughter in laws particulaly)
    It is for consideration. or some other concession may be considered to provide sense of security to old people . Thanks

  6. Shridhar says:


    Appriciate Arif that you got good statistics collected.

    1. You mentioned that Govt surely work towards reducing the deficit. this deficit can be controlled with bringing foolproof tools into the sanction and spending system. as long as Govt spends money effeciently, deficit can be brought under control with giving more exemptions/waive off. this is not happening from Govt. When they give the picture of only deficit and come with increase in tax rates, not correct.
    2. As you mnetioned even a begger pays indirect tax. this is true and 3.5 % of total population is giving IT. if you could collect the % IT contribution in total revenue, will give more idea on considering revised exemption/deductions

  7. K K SARAOGI says:

    I fully agree with the views. I further add that that the Government should not ignore interests of the retired persons and increase threshold exemption limt as well as reintroduce deduction of interest on bank fixed deposits for them under Sec.80L – K.K.SARAOGI

  8. R.P.Sonthalia says:

    very good expectations apart from these there should be separate slab of income tax for the assessee having salary income only specialy for the retired persons.

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