Standard deduction to salaried employees and withdrawal of exemption pertaining to medical reimbursement [Secs. 16 and 17]
The following amendments have been made to the scheme of sections 16 and 17 :
• Standard deduction –
Clause (ia) has been inserted in section 16. This clause provides standard deduction from the assessment year 2019-20 in computing income chargeable under the head “Salaries”. The amount of standard deduction will be Rs. 40,000 or the amount of salary, whichever is lower.
• Withdrawal of exemption pertaining to reimbursement of medical expenditure –
Section 17(2) has been amended to withdraw exemption pertaining to reimbursement of medical expenditure of Rs. 15,000. This modification is also applicable from the assessment year 2019-20. However, other existing exemptions which are available for different medical facilities (e.g., medical facility to employees in Government hospitals and approved hospitals, payment of medi-claim insurance premium by employer) will continue.
Further, the Finance Minister in his budget speech has announced to withdraw the present exemption of Rs.1,600 per month of transport allowance (however, transport allowance exemption at enhanced rate of Rs. 3,200 per month shall continue to be available to differently abled persons).
EXAMPLES –
X (48 years) is a cos accountant and employed by XYZ Ltd., Mumbai. He gets Rs. 2,00,000 per month as salary and Rs. 2,00,000 per annum as bonus. Besides, A Ltd. provides the following—
- Transport allowance : Rs. 1,600 per month.
- Medical facility in a hospital which is owned by XYZ Ltd. Cost to A Ltd. for providing this facility to X: Rs. 40,000.
- Medical facility in a Government hospital: Rs. 28,000.
- Medical facility in a private hospital (the same hospital is recommended by the Government for the medical treatment of Government employees): Rs. 18,000.
- Medical facility (rule 3A) in an hospital approved by the Chief Commissioner : Rs. 53,000.
- Medi-claim insurance premium paid by XYZ Ltd. for X and his family : Rs. 45,000.
- Reimbursement by XYZ Ltd. of other medical expenditure : Rs. 18,000.
Income of X from salary will be calculated as follows —
|
A.Y. 2018-19 |
A.Y. 2019-20 |
Basic salary |
24,00,000 |
24,00,000 |
Bonus |
2,00,000 |
2,00,000 |
Transport allowance ( Rs. 1600 x 12 ) |
Nil |
19,200 |
Medical facility in XYZ Ltd.’s hospital |
Nil |
Nil |
Medical facility in Government hospital |
Nil |
Nil |
Medical facility in a Private Hospital |
Nil |
Nil |
Medical facility (Rule 3A) |
Nil |
Nil |
Medi-claim insurance premium paid by NeXT Ltd. |
Nil |
Nil |
Reimbursement of other medical expenditure (reimbursement up to Rs. 15,000 is not chargeable to tax for the Assessment Year 2018-19) |
3,000 |
18,000 |
Gross Salary |
26,03,000 |
26,37,200 |
Less : Standard Deduction U/s 16(ia) |
Nil |
40,000 |
Income under the head “Salaries” |
26,03,000 |
25,97,200 |
Difference in Taxable Salary is only Rs. 5,800. |