Section 16, inter-alia, provides for certain deduction in computing income chargeable under the head “Salaries”. It is proposed to allow a standard deduction Rs. 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Allowance (except in case of differently abled persons) and reimbursement of medical expenses is proposed to be withdrawn.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 financial year starting from 1^st April, 2018 and will, accordingly, apply in relation to the financial year 2018-19 and subsequent financial years.

Extract of Clause 7 and 8 of Finance Bill, 2018

1. 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 said head.

2. 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.