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Govt plans to link tax with inflation rate
October, 06th 2008

Inflation might bring relief for taxpayers in future. The government is considering a proposal to link taxable income with inflation rate. Discussions are on among policymakers in North Block on how salaried employees, especially pensioners, can be protected from price rise which, in recent times, has brought down the purchasing power of common man.

North Block sources told SundayET that the draft proposal not only intends to re-introduce the concept of standard deduction but also talks of possibilities of linking tax slabs with inflation rate. The concept is not new. In the US, the personal exemption amount, standard deduction, federal income-tax brackets and many other tax-related numbers are annually adjusted based on inflation data.

The proposal is in the initial stages and has been discussed within the ministry. However, since the government has already had its share of budget presentations, the proposal may only get a final go ahead after the general elections, a senior finance ministry official said.

Tax consultants feel such a proposal is the need of the hour. It will come as a big relief for pensioners (senior citizens) who earn fixed income. The high inflation rate has considerably reduced the purchasing power of the common man. The restoration of standard deduction (linked to the inflation data) will only create a level playing field for the salaried class, said Vikas Vasal, executive director of KPMG India.

The argument is based on the premise that if professionals and businessmen are allowed deduction for full expenses relating to their professions/business, then why deny deduction to salaried individuals for employment-related expenses.

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