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International Journal of Management (IJM)
Volume 9, Issue 1, Jan–Feb 2018, pp. 65–71, Article ID: IJM_09_01_011
Available online at
http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=1
Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
© IAEME Publication
IMPACT OF FINANCE BILL 2018 ON SALARIED
PERSON TAX
Dinesh Goyal
Lecturer in Commerce, Department of Commerce,
GSSS KAWI Panipat, India
ABSTRACT
The Finance bill is an important bill in India and the Central Government,
through this bill, gives effect to financial proposals at the beginning of every Financial
Year . Every Finance bill is assented by the President of India after passing in the
both houses of parliament. After it finance bill become Finance Act .This Act applies
to all the States and Union Territories of India unless specified otherwise. Finance Act
thus making this Act one that renews itself each year. All the Governmental financial
policies are included in this Act. The existing policies, new policies, as well as
changes made to existing policies are all included here all the elements included in the
Finance Act associated with a particular Financial Year are of course important.
Even so, there are particular elements that take precedence over the others. The most
important element is the rules laid down in the Act with respect to Income Tax Rates.
Every year, the Act lays down in detail all the associated provisions related to Income
Tax in the country. Since this applies to a large number of taxpayers, it is considered
one of the most important elements. The Finance Act for a particular financial year
also includes the amendments that have been made with respect to Direct Taxes. The
Amendments made under various sections are noted down in this section of the
Finance Act and each amendment of every section is noted down separately it also
included the details of the insertion of new sections, if any This paper will help to
analysis the impact of finance bill 2018 on salaried person tax.
Key words: Finance Bill, Finance Act, Standard deduction, Section, Clause.
Cite this Article: Dinesh Goyal, Impact of Finance Bill 2018 on Salaried Person Tax.
International Journal of Management, 9 (1), 2018, pp. 65–71.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=1
1. INTRODUCTION
As per Section 15, the following incomes are chargeable to Income-tax under the head
„Salaries‟:- any salary due from an employer or a former employer to an assesse in the
previous year whether paid or not; any salary paid or allowed to him in the previous year by
or on behalf of an employer or a former employer though not due or before it becomes due to
him; any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer if not charged to income-tax for any earlier previous year.
Dinesh Goyal
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Under the provisions of this section the amount of salary due in the year, amount of advance
salary received and the amount of arrears of salary received during the year from the present
or past employer are to be included in this head. in the explanation attached to section 15, it
has been clearly mentioned that for the removal of doubts, it is hereby declared that where any
salary paid in advance is included in the total income of any person for any previous year it
shall not be included again in the total income of the person when the salary becomes due.
The important rule is that income once taxed cannot be taxed again, so any salary paid in
advance (if taxed in a previous year when the advance salary was received) will not be
included again in the total income of the person when the salary becomes due. Advance salary
does not include loans, e.g., loan to purchase a car or a scooter or for building a house etc.
Any salary, bonus, commission or remuneration, by whatever name called due to or received
by a partner of a firm from firm shall not be regarded as salary for the purposes of this
section. According to Section 17(1) salary includes the following amounts received by an
employee from his employer, during the previous year :Wages; any annuity or pension
(Family pension received by heirs of an employee is taxable under income from other
sources); any gratuity; any fees, commission, perquisites or profits in lieu of or in addition to
any salary or wages; any advance of salary(Advance against salary is a loan and hence not
taxable); any payment received by an employee in respect of any period of leave not availed
of by him(Leave encashment or salary in lieu of leave); the annual accretion to the balance at
the credit of an employee participating in a recognized provident fund, to the extent to which
it is chargeable to tax under Rule 6 of part A of the Fourth Schedule; and the aggregate of all
sums that are comprised in the transferred balance as referred to in sub-rule (2) of Rule 1] of
Part A of the Fourth Schedule, of an employee participating in a recognized provident fund, to
the extent to which it is chargeable to tax, under sub-rule (4) there, i.e., taxable portion of
transferred balance from unrecognized provident fund to recognized provident fund; the
contribution made by the Central Government or any other employer in the previous year, to
the account of an employee under a pension scheme referred to in Section 80CCD. The above
definition of word „salary‟ U/s 17(1) includes the above mentioned items. These can be
explained in following manner Wages—any amount received by a person for work done or
job rendered is called wages. It may be received under the name of „Pay‟, „Basic Pay‟, „Salary‟,
„Basic salary‟ or „Remuneration‟. It may be for actual work or leave salary or actually received
or due during the relevant previous year. It is fully taxable u/s 15 if received during the
relevant previous year. Any Annuity or Pension—Any amount received by employee from
past employer after attaining the age of retirement or superannuation is fully taxable. It may
be received direct as pension or out of a superannuation fund created by employer; in both
cases it is taxable. Any Gratuity—Any sum received by employee from his past employer as a
token of gratitude for services rendered in past is called gratuity. This amount is exempted up
to certain limits given u/s 10(10). Any amount received from employer under the name of fee
is also fully taxable, any commissions given by employer to employee is fully taxable. Any
commission received by a director for standing guarantee for repayment of loan, and if he is
not employee of the company, shall be taxable under “Income from other sources”. In case
commission is given to an employee and it is paid as a fixed percentage of turnover achieved
by such employee, such commission shall also be treated as part of the salary .Bonus is fully
taxable under the head „Salaries‟ on receipt basis. In case arrears of bonus are received in a
previous year, these are fully taxable. Bonus can be of two types, Statutory Bonus—It is
received under some legal or contractual obligation and is fully taxable. Gratuitous Bonus—It
is a casual benefit and is taxable as a receipt from employer and having no other
implication.any Perquisite means Any benefit or amenity allowed by employer to employee.
These are explained in detail u/s 17(2). any cash payment received by employee from
employer is called profit in lieu of salary and these are explained u/s 17(3) of income tax act.
Impact of Finance Bill 2018 on Salaried Person Tax
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any salary in lieu of leave received during service is fully taxable. any advance salary—In
case an assessee receives some salary in advance in a previous year and which was actually
not due in that year shall be taxable in the year of receipt. It does not include any loan or
advance taken from employer
2. RULE TO TAX SALARY INCOME IN INDIA
Due and receipt whichever is earlier
3. REVIEW OF SECTION 16
Section 16 of the Income Tax Act provides allowable deductions from Salary Income. There
are total three deductions (now two) under section 16, provided in 3 different clauses. Clause
(i) of Section 16 allows a Standard Deduction, (omitted recently). Clause (ii) of Section 16
allows deduction for Entertainment Allowance. Clause (iii) of Section 16 allows Deduction
for Professional Tax. In India, it last existed during the financial year 2004-05 and allowed a
salaried employee to claim a flat deduction from his or her salary income of 30,000 or 40% of
salary (if salary did not exceed 5 Lakhs) or a deduction of 20,000 (if salary exceeded 5
Lakhs). After 2005 when standard deduction was withdrawn, employees used to hope before
every Budget it would be brought back. Their hope has been fulfilled this time. Finance
Minister has announced a standard deduction of 40,000 and said medical allowances,
however, would continue.Standard deduction will allow for a flat deduction from salary
income, to make up for some of the expenses which an employee would typically incur in
relation to his employment. The following amounts shall be deducted in order to arrive at the
chargeable income under the head „Salaries‟. Section 16(A) Standard deduction: Omitted by
Financial Act, 2005 w.e.f. 1.4.2006.Section 16 (ii) Where the employee is in receipt of
entertainment allowance, the amount so received shall first be included in the salary income
and thereafter the following deduction shall be made under Section 16(ii) A deduction in
respect of any allowance in the nature of an entertainment allowance specifically granted by
an employer to the assessee who is in receipt of a salary from the Government, a sum equal to
one fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five
thousand rupees, whichever is less. W.e.f. April 1, 2002 entertainment allowance will be
allowed in computing income from salary only in case of employees of the Government and
will cease to be allowable for persons other than those employed in Government i.e.
entertainment allowance deduction will not be allowed to other employees.For this purpose
„Salary‟ excludes any allowance, benefit or other perquisites: Where an employee, not entitled
to claim deduction under this clause, spends some money on the entertainment of customers
of the concern, the amount so spent cannot be deducted from the salary income. The condition
makes exemption well-nigh impossible for the employees of private sector. For them, the
better course would be to get the entertainment expenses reimbursed. Section 16 (iii) Tax on
employment or Professional Tax: From the assessment year 1990-91, deduction shall be
allowed in respect of any sum paid by the assessee on account of a tax on employment within
the meaning of clause (2) of article 276 of the Constitution, leviable by a State under any law
passed by its legislature. Where Professional/Employment tax is paid by the employer on
behalf of the employee, it will first be included in his gross salary as a perquisite, being a
monetary obligation of the employee discharged by the employer. Thereafter, a deduction on
account of such professional tax shall be allowed to the employee from his gross salary.
Professional tax due but not paid shall not be allowed as deduction.
Dinesh Goyal
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4. AMENDMENT IN SECTION 16
In section 16 of the Income-tax Act, after clause (i) [as omitted by section 6 of the Finance
Act, 2005 the following clause shall be inserted with effect from the 1st day of April, 2019,
namely(ia) a deduction of forty thousand rupees or the amount of the salary, whichever is less.
Clause 7 of the Bill seeks to amend section 16 of the Income-tax Act relating to deductions
from salaries. The existing provisions of the said section, inter alia, provide that the income
chargeable under the head "Salaries" shall be computed after making certain deductions
specified therein.It is proposed to insert a new clause (ia) in the said section so as to provide
for deduction of forty thousand rupees or the amount of the salary whichever is less,for the
purpose of computing the income chargeable under the head salary.This amendment will take
effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year
2019-2020 and subsequent years
Table 1 Example
Gross Salary after disallowed
transport allowance and medical
reimbursement
Standard Deduction as per
Finance Bill 2018
Net Salary
30000
30000
Nil
50000
40000
10000
100000
40000
60000
200000
40000
160000
5. AMENDMENT IN SECTION 17
In section 17 of the Income-tax Act, in clause (2), in the proviso occurring after sub-clause
(viii), clause (v) shall be omitted with effect from the 1st day of April, 2019.Clause 8 of the
Bill seeks to amend section 17 of the Income-tax Act relating to "Salary", "perquisite" and
"profits in lieu of salary" defined. Clause (v) of the proviso occurring after sub-clause (viii) of
clause (2) of the said section provides that any sum paid by the employer in respect of any
expenditure actually incurred by the employee on his medical treatment or treatment of any
member of his family not exceeding fifteen thousand rupees in the previous year shall not be
treated as perquisite in the hands of the employee. It is proposed to omit the said clause
(v).This amendment will take effect from 1st April, 2019 and will, accordingly, apply in
relation to the assessment year 2019-2020 and subsequent years. From memorandum
explaining bill Standard deduction on salary income Section 16, inter-alia, provides for
certain deduction in computing income chargeable under the head “Salaries”. it is proposed to
allow a standard deduction up to ₹40,000/- or the amount of salary received, whichever is
less. Consequently the present exemption in respect of Transport Allowance (except in case of
differently abled persons) and reimbursement of medical expenses is proposed to be
withdrawn. These amendments will take effect from 1st April, 2019 and will, accordingly,
apply in relation to the assessment year 2019-20 and subsequent assessment years.
6. IMPACT OF FINANCE BILL 2018 ON SALARIED PERSON
Finance Bill 2018 has proposed to provide a standard deduction up to ₹40,000 from salary
income to employees instead of a deduction for transport allowance ₹19200 and
reimbursement of medical expenses of up to ₹15000. Standard deduction is essentially a flat
amount subtracted from the salary income before calculation of taxable income. The standard
deduction was a part of the Income-tax Act until former finance minister, P. Chidambaram,
withdrew it in the Union budget of 2005-06 .As per finance bill 2018 there is no change in tax
rates however cess increased to 4% from earlier 3%. Prima facie income exempted from tax
Impact of Finance Bill 2018 on Salaried Person Tax
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after setting off the gain and loss comes to only ₹5800(40000-19200-15000). The tax saved
for each employee on this income would depend on the tax slab that income falls into. The
saving in tax would be ₹290 for those currently paying 5% tax on this income; ₹1160 for
those paying 20% as tax on this income; and ₹1740 for those paying 30% tax on this income.
However, these savings would be nullified in most cases, except in the case of income up to
₹5 lakh, due to increase incess.
6.1. Analysis the tax of employee Age <60 with financial year 2017-18 and
financial 2018-19
Gross Total Income
(it is assumed that
after deduction of
transport allowance
19200 and
reimbursement of
15000 under the head
salary)
Tax as per Finance Act
2017(With cess 3%and
after deduction of
transport allowance
19200 ,reimbursement
of 15000 and 80C
deduction 150000
Tax as per Finance Bill
2018(With cess 4% and
standard deduction up to
40000 and 80C deduction
150000 after disallowance
of transport allowance
19200, reimbursement of
15000
Difference
3
NIL
NIL
NIL
4
NIL
NIL
NIL
5
2575
2299
+276
10
84975
84594
+381
15
224025
224391
-633
20
378525
380391
-6633
25
533025
536391
-6633
30
687525
692391
-6633
50
1305525
1316391
-66633
80
2455778
2477630
-26612
100
3135578
3164030
-26612
150
5054854
5101849
-63661
200
6831604
6895849
-36261
6.2. Analysis the tax of employee Age >60 but <80 with financial year 2017-18 and
financial 2018-19
Gross Total Income(
it is assumed that
after deduction of
transport allowance
19200 and
reimbursement of
15000)
Tax as per Finance Bill
2018(With cess 4% and
standard deduction up to
40000 and 80C deduction
150000 after
disallowance of transport
allowance 19200,
reimbursement of 15000
Difference
3
NIL
NIL
4
NIL
NIL
5
NIL
NIL
10
81994
+406
15
221791
-341
20
377791
-1841
25
533791
-3341
30
689791
-4841
50
1313791
-10841
80
2474770
-21825
100
3161170
-28425
150
5098859
-46966
200
6892859
-64216