Union Finance Minister Arun Jaitley presented the Budget for 2018-19 on Thursday in the Parliament. Here’s how the budget will impact the large salaried and pension class of the country.
1. Personal Income Tax Slabs: Your personal tax structure remains unchanged and the basic exemption limit is not enhanced . So you will continue to pay tax on the existing tax slabs.
2. Increase in Education Cess: Budget 2018 proposes to increase the current cess on income tax from 3% to 4% which will increase your tax payable across all the categories of tax payers. For example, if your income is Rs. 15 lakh then your tax will go up by Rs 2,625/- and for a person earning between Rs 5 lakh to Rs 10 lakh, his or her tax liability will increase by Rs 1,125/-.
3. Standard Deduction: The long overdue demand of bringing back the standard deduction is fulfilled. The standard deduction aims to reduce the tax liability and unnecessary paperwork because it does not require you to submit any proof towards your expense or an investment to the extent of allowable limit. The Union Budget 2018 has proposed to offer a standard deduction of Rs 40,000/- from your salary but a very important point to note here is that it also proposes to take away your existing transport allowance of Rs. 15,000/- & medical reimbursement of Rs. 15,000/-. So, after setting off both the effects i.e. reducing these two allowances from Rs. 40000 standard deduction, the tax will be saved only on Rs. 5800/- of income. The same also depends on your income tax slabs and it effectively save only Rs 290/- for those whose slab is 5% at present and Rs 1160/- for a 20% tax bracket person. Anyone earning more than Rs. 10 lakhs i.e. 30% tax slab taxpayer, will be saving Rs 1,740/-. However you will not be able to enjoy any major tax savings due to this because there is an increased cess which will also reduce the overall benefit.
4. Long Term Capital gain Tax: At present, long-term capital gains (LTCG) on the sale of equity shares and equity-oriented mutual funds is completely tax exempt provided you have sold the stocks or MFs after holding it for more than a year. Now, the budget has introduced the Long-term capital gain tax which will be taxed at 10% but only for the gains which exceeds Rs. 100,000/-. Important point to note here is that the benefit of indexation will not be allowed while calculating the tax liability. There is one relaxation given on account of all your gains as on 31st January 2018 which are set to become grandfathered. Now, what is this grandfather rule?
A grandfather clause is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. Those exempt from the new rule are said to have grandfather rights or acquired rights, or to have been grandfathered. So, let’s understand, how it is going to apply in this new rule, for e.g. if you would have bought some equity shares 6 months before 31st January 2018 for Rs. 100 and the highest price as on 31st January was Rs. 120, then you do not need to pay any tax on selling these stocks after holding it for a year. But any gains in excess of Rs. 20 (i.e. 120-100) will be taxable at the rate of 10% if you sold the shares after 31st July 2018 i.e. after holding it for a minimum one year.
5. Reliefs for Senior Citizens: The budget has some good announcements for your parents who are senior citizens, now the interest income exemption on their FDs with banks & post offices will be increased from the present limit of Rs. 10,000 to Rs. 50,000 which means they don’t have to pay any tax on an interest income up to Rs. 50000/-. At present, the interest earned on savings account is allowed as deduction for a maximum yearly limit of Rs 10,000/- under section 80TTA, the same will increase for a senior citizen as mentioned above.
6. NO TDS: Budget has proposed not to deduct tax i.e. TDS under section 194A for a senior citizen towards their interest income from FDs and recurring deposit schemes, it will save them from filing their tax returns just for claiming the excess TDS.
7. Increase in Medical Premium limit u/s 80D & 80DD: Senior citizens will also get additional benefit of deduction towards their health insurance premium from an existing limit of Rs. 30,000 to Rs. 50,000 under section 80D. Similarly, there is an Increase in the deduction limit for any medical expenditure towards a critical illness to Rs. 1 lakh for all the senior citizens, U/S 80DDB.
8. Dividend Distribution Tax @10% by Equity mutual funds: A tax on distributed income by an equity oriented mutual fund will be taxed at 10%. At present, dividend distribution is not there on equity-oriented mutual fund schemes. This move will hit those investors say like a retired person who used dividends from equity schemes for generating their monthly or periodic income.
Rishabh Parakh is a Chartered Accountant and the Chief Gardener of Money Plant Consultancy, a leading Tax & Financial Services Provider. Readers can contact the author on his mobile number (9011143335) or send their feedback to [email protected]