The 2018 Union Budget had great news for employees and HR managers alike. I am, of course, talking about the reintroduction of the standard deduction for all salaried employees and the phasing out of medical reimbursements and conveyance allowance.
For organizations, these “benefits” have always been a proverbial white elephant. They were expensive to offer, and the value derived did not really match the costs involved. Employees would typically fill up forms, attach bills and submit them, and HR managers would verify each claim manually before approving or rejecting them.
But now, with the standard deduction adding INR 40,000 to all employees’ non-taxable income, there’s reason for both employees and HR managers to rejoice — employees don’t have to worry about saving bills to claim them, and HR managers are freed from the burden of having to verify these claims. However, it’s not really a rosy picture for either party.
With both medical reimbursements and travel allowances, employees could save taxes on a total of INR 34,200, where INR 15,000 could be claimed against medical expenses and INR 19,200 against travel expenses. With the INR 40,000 standard deduction, only INR 5,800 is being added to an employee’s non-taxable income.
After doing the math, an employee with an annual income of INR 5,00,000 a year, and falling in the 5% tax bracket, can expect to save only an additional INR 290 a year. While employees in the 20% and 30% tax slabs can expect to save more, any celebration would be rather premature.
Education cess blues
Since 2008, salaried employees have been contributing a small percentage of their paychecks towards education. This is deducted from salaries as an education cess, which is used to fund mid-day meal programmes, build and run government-aided schools and colleges, pay salaries to the teachers at these institutions and a lot more. Until March 31, 2018, education cess would stand at 3%.