sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
News Headlines »
 How to use your Form 16
 Which ITR form applies to you for financial year 2017-18?
 Income tax returns filing form-2 released; should you use it? Find out
  Are you planning to file ITR 1 form? here's how to do it Income Tax Return (ITR) filing
 30 LPA-Opening Financial Controller
 ITR form 2 in java release by CBDT for return filing by individuals
 How to file your income tax return using ITR Form-1 Income Tax efiling for AY 2018-19
 Income tax returns (ITR) filing: Have you received I-T dept notice? Safeguard yourself; here is how
 Delayed release of electronic ITR forms may compel CBDT to extend the filing deadline
 Trading volume linked to tax return?
 How to e-verify your income tax return? Here are five ways to do it

On taxation of salaried employees in India
February, 16th 2007

Although equity is one of the main canons of a tax law, inequity in taxation laws can be accepted to a certain extent given the fact that the nature of professions and income earned are different. For long, salaried employees in India have been complaining that tax laws are against their favour.

Nothing can probably signify this more that the fact that a salaried software engineer in Bangalore, having a gross salary of Rs 20 lakh, pays a tax of around Rs 7 lakh while one of the ubiquitous small restaurants in Bangalore- darshinis in local lingo- with a similar turnover reflects a net taxable income of around Rs 70,000 and pays a pittance as tax on that.

Blame this on the rigorous tax deducted at source norms or relaxed norms for small hotels, the difference still glares.


The ideal taxation system for salaried class was probably a few years back. Their income was subject to the threshold limit exemption, they were entitled to a housing loan interest deduction of Rs 1.5 lakh and their tax break for saving was Rs 1 lakh.

However, there has been no increase in these limits even though inflation has bitten into the wallet of the salaried man a bit deeper and the increase in his salary has been met with an increase in his tax with no corresponding increase in his savings options.

To add to his woe, the service tax on services he utilises is 4.24 per cent costlier and he has no facility of setting off the tax he has paid against the services he renders. Contrast this with other professionals who can set-off their service tax on input services.

Service tax

The increase in service tax on all services and the cost-push effect of inflation has ensured that the salaried man is worse off.

Two deductions reflect the concern of the salaried tax payer. He has been entitled to a measly deduction of Rs 800 a month as conveyance from the home to office and back. With cities expanding, companies prefer to set up their offices in areas that are invariably a wee bit away from the city. This deduction would not cover his actual payout even for about 10 days transport costs. The employee would not prefer to shift his residence to these places since the conglomeration of IT companies ensures that costs are much higher.

Medical expenses

Similarly, for medical expenses incurred, the cap has been fixed at Rs 15,000 a year. This deduction also needs to be increased substantially since hospitals demand more than this amount even to get admitted in there. Many companies do cover their employees with mediclaim schemes but the purpose of this deduction has been to cover expenses that employees incur on their own.

Similarly, preventing employees earning income above a particular limit from claiming the benefit of standard deduction seems inequitable. With the levy of fringe benefit tax, companies think twice before providing any perquisites to employees since this tax comes as a dampener. This results in making back-of-the-envelope calculations as to whether taking the money as salary and paying tax is better or recording a perquisite and the company paying fringe benefit tax on it is better.


There are also a number of perquisites in the Indian tax law for salaried employees such as salaries to gardeners and provision of gas facility in the house that need to be re-looked. The deductions here too are too measly to merit attention and employees who get these perquisites are at a position in the company wherein they would not mind paying this on their own. This could be a good time for the Finance Minister to redress some of the grievances of the salaried class.

Otherwise, the growing trend of classifying salaried employees as "consultants" and classifying the salary paid as income from profession can only increase.

Mohan R. Lavi
The author is General Manager - Finance, JDA Software India Pvt Ltd.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Careers

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions