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ICAI suggests standard deduction in salary in Budget
June, 01st 2009

Accounting regulator ICAI has suggested bringing back standard deduction in the regular Budget for 2009-10 which if accepted will be cheered by millions of salaried employees.

"Standard deduction should be restored," the Institute of Chartered Accountants of India (ICAI) said in its pre-Budget memorandum to the government.

If the suggestion goes well with the government, it could result in restoration of standard deduction of some amount in the taxable income of salaried employees and could lessen the tax burden on them.

"This is a form of relief measure we are suggesting for salaried class. If there are some expenses which are allowable in case of other head, then why not salary ?" ICAI President Uttam Prakash Aggarwal told PTI.

Standard deduction was given to employees to compensate for the expenses incurred by them like conveyance for earning their salaries.

Taking into account the recommendations of the Kelkar Committee on Direct Taxes, the then Finance Minister P Chidambaram had announced abolition of standard deduction in the Budget 2005-06. It was abolished with effect from April 1, 2006.

Standard deduction of 40 per cent of employee's salary or Rs 30,000, whichever was less, was allowed for employees whose salary was not more than Rs 5 lakh.

Besides, for employees with salary of more than Rs 5 lakh, a deduction of Rs 20,000 was allowed.

Meanwhile, among other suggestions for direct taxes, ICAI has suggested that corporates' agricultural activities should be brought into the tax net.

With the expansion of the agri-business, many corporates are undertaking composite activities in agriculture, the institute said.

"It is suggested that agricultural activities carried on by corporates may be brought into the scope of the tax net," ICAI said.

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