Budget 2018 belongs to Bharat (rural India) with special emphasis being laid on welfare of farmers, the socially and economically weaker sections of the society. The main focus of the Budget has been on farmer empowerment, health care schemes, infrastructure and ease of living for the common man. However, in the process of empowering Bharat, Finance Minister Arun Jaitley has not provided much relief to the salaried class.
On the personal taxation front, the high pre-Budget expectations of the salaried class were moderated with no major tax relief announcements.
The key takeaways from the 2018 Budget in respect of personal taxation have been listed below:
Tax rate for individuals
FM Jaitley has kept the slab rates as well as the tax rates unchanged. However, the FM has increased the cess by 1%. The 3% “Education cess” has been replaced by a 4% “Health and Education Cess”. Accordingly, this will increase the tax outgo for all individuals. The higher the income, the higher will be the tax outgo.
Introduction of standard deduction of Rs 40,000
The Budget 2018 has reintroduced the concept of standard deduction with a view to reduce paper work and hassles of maintaining documentation. The standard deduction of Rs 40,000 has been introduced in lieu of tax free limit of transport allowance of Rs 19,200 per annum and medical expenses reimbursement of Rs 15,000 p.a. Effectively, the net increase in exemption is only to the extent of Rs 5,800 p.a. The standard deduction will be available as a flat deduction while calculating salary income.
However, in case of differently-abled individuals, the benefit of tax exemption of transport allowance of Rs 38,400 p.a. will continue in addition to standard deduction of Rs 40,000.
Relief to senior citizens
The FM has granted various tax benefits to senior citizens. This is a welcome step.
# Exemption of interest income on deposits with banks (including fixed deposits and recurring deposits) and post offices has been increased from Rs 10,000 to Rs 50,000. Further, there will be no TDS for such interest income under section 194A upto Rs 50,000.
# Deduction limit under section 80D towards health insurance premium has been increased from Rs 30,000 to Rs 50,000 for all senior citizens and very senior citizens. In addition the benefit of medical expenditure which is currently available to very senior citizens who do not have mediclaim is also now extended to senior citizens and the deduction has also been enhanced from Rs 30,000 to Rs 50,000.
# Deduction limit under section 80DDB in respect of certain critical illness has been increased:
i. For senior citizens from INR 60,000 to INR 1,00,000;
ii. For very senior citizens from INR 80,000 to INR 1,00,000.
Reintroduction of tax on Long Term Capital Gain (LTCG)
Currently LTCG from sale of listed equity shares (ES) and equity-oriented mutual funds (EOMF) is exempt from tax. However, the Budget has proposed to tax the LTCG from ES and EOMF exceeding Rs 1 lakh @ 10% plus surcharge (SC) and education cess (EC),without the indexation benefit.
However, in order to reduce the tax impact on sale of ES and EOMF purchased before 1 February, 2018, grandfathering provisions has been introduced. As per the provision, for shares purchased prior to 1 February 2018 and sold after 31 March, 2018, long term capital gains earned up to 31 January 2018 will not be taxable. However, any excess earned on sale post 31 March2018, will be subject to tax @ 10% (plus SC and EC) subject to exemption on LTCG of Rs 1 lakh.
For example, if an equity share is purchased before 1 February, 2018 at Rs 200 and the share price quoted on 31st January, 2018 in respect of this share is Rs 250, there will be no tax on the gain of Rs 50 if this share is sold post 31 March, 2018 after one year from the date of purchase. Any gain in excess of Rs 50 earned after 31st January, 2018 will be taxed at 10% (plus SC and EC). However, while computing LTCG for shares sold after 31March, 2018, LTCG exemption of Rs 1 lakh will be available.
Extending the benefit of tax-free withdrawal from NPS to all assessees
The benefit of tax-free withdrawal of 40% of total amount payable on closure of the NPS account or opting out of NPS has now been extended to non-employee individuals also. This has brought in parity between all individuals.
The Budget 2018 has been a mixed bag for individuals, but positive for senior citizens as it will provide much-needed funds for their retired life.
(By Homi Mistry, Partner, Deloitte India; Niji Arora, Senior Manager and Vivek Mistry, Manager with Deloitte Haskins and Sells LLP)