Budget 2018: As you all know, on 1st February, 2018, Finance Minister Arun Jaitley delivered the fifth and the last full Budget of the Modi government. It was a crucial one as it was presented before the upcoming elections in 2019 and amidst the various challenges faced by the Indian economy. Although the expectations of taxpayers were not met, the Budget proposals made a few sections of society – including senior citizens and women – happy. Whatever be the case, the FM made many direct tax proposals which every taxpayer needs to be aware of as they will now not only impact their finances, but also the tax outgo. Let’s get through the 11 such direct tax proposals made by FM Jaitley. Here’s what income tax returns (ITR) filers must make themselves aware of:
1. Reintroduction of Standard Deduction
Currently, an employee is entitled for an exemption of Rs 1600 per month (Rs 3200 per month for differently-abled employees) towards transport allowance and exemption of Rs 15,000 for reimbursement of medical expenses. The total of these two benefits amounts to Rs 34,200 (15000+19200) in a normal case. These benefits are allowed on the basis of submission of proofs.
Proposed amendment: Now, in place of these two exemptions, a flat deduction of Rs 40,000 is proposed to be reintroduced for all salaried employees including the pensioners or the differently-abled which is named as standard deduction. “Further, the benefit of transport allowance of Rs 3200 per month shall continue to be allowed to the differently-abled persons. Therefore, in comparison to the existing provision, the net benefit, i.e reduction in the taxable income, is only of Rs 5,800 (40,000-34,200) for a common man which would be further slashed by the cess increase of 1%,” says CA Abhishek Soni, Co-founder, Tax2win.in.
2. Introduction of Section 80TTB & increase in TDS threshold
Currently, a deduction up to Rs 10,000 is allowed under section 80TTA to an assessee in respect of interest income from savings account.
Proposed amendment: A new section 80TTB is proposed to be inserted so as to allow a deduction up to Rs 50,000 in respect of interest income from deposits held by senior citizens from the existing limit of Rs 10,000. Moreover, the benefit of such deduction is proposed to be extended to interest on fixed deposits and recurring deposits etc. Further, no deduction under section 80TTA shall be allowed in above cases. Apart from section 80 TTB, it is also proposed to amend section 194A of the Act so as to increase the threshold limit for deduction of tax at source on interest income payable to senior citizens from the existing Rs 10,000 to Rs. 50,000.
3. Limit raised under section 80DDB
At present, Section 80DDB provides a deduction to an individual and HUF for the amount paid for medical treatment of specified diseases up to Rs 80,000 in case of a very senior citizen (persons above the age of 80 years) and up to Rs 60,000 in case of senior citizens.
Proposed amendment: Considering the current cost of medical expenditure for specified diseases, it has been proposed to increase such deduction up to Rs 1,00,000 for all senior citizens in place of existing deduction up to Rs 80,000 and Rs 60,000 in respect of very senior citizen and senior citizens, respectively.
4. Higher deduction under Sec 80D
Currently, Section 80D provides a deduction to an individual or a HUF up to Rs 25000 in case of person below 60 years and Rs 30,000 for senior citizen towards the payment of annual premium on health insurance policy. This section includes the expenditure on the preventive health check-up of all the individuals and specifically in case of very senior citizen it also covers the medical expenditure incurred even without any policy cover taken.
Proposed amendment: Since in the recent past there has been a continuous hike in the cost of medical expenditure, section 80D is proposed to be amended to increase the limit of deduction from Rs 30,000 to Rs 50,000 for senior citizens, who is of the age of 60 years or more during the previous year.
Further, “the benefit which was earlier available only for very senior citizens has been extended to senior citizens as well, i.e. now the senior citizen who is not covered by insurance can also claim the benefit of medical expenditure up to Rs 50,000. Additionally, in case of single premium health insurance policies having the term of more than a year, it is proposed that the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the certain monetary limit,” informs Soni.
5. NPS to self–employed
As per the existing provisions of section 10 of the Act, an exemption of 40% of the total amount is provided to an employee contributing to the NPS on closure of his account or on opting out of NPS. This exemption is not available to self employed.
Proposed amendment: In order to bring parity in the provisions of employed and self-employed person with respect to NPS, FM Arun Jaitley has proposed to amend the section 10 to extend the benefit of such exemption to all assessees.
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6. LTCG brought into Tax net
Currently, Long-Term Capital Gains (LTCG) arising from the transfer of equity shares of a company or an unit of equity-oriented fund are exempt by virtue of section 10(38), provided transactions is being carried out on a recognized stock exchange and are securities transaction tax (STT) paid.
Proposed Amendment: Section 10(38) is proposed to be withdrawn and for taxing LTCG, a new section 112A is proposed to be inserted with effect from F.Y. 2018-19. Under this section, LTCG in excess of Rs 1 lakh is recommended to be taxed @10% without the benefit of indexation. This move has been suggested in order to minimize economic deformation.
Additionally, “a relaxation has been provided in this proposal, i.e. the current exemption on the LTCG tax would continue until 31 January 2018. Only the gains that would arise after 31 January 2018 would be taxable. In other words, if the shares are sold up to 31st March 2018, then LTCG shall be exempt. Moreover, if shares are sold on or after 1st April 2018, then the date – 31st January, 2018 will play a important role in determination of the cost of acquisitions (COA),” says CA Vertika Kedia, Co-founder, Tax2win.in.
COA shall be deemed to be the higher of:
a) the actual cost of acquisition of such asset and
b) the lower of –
(I) the fair market value of such asset on 31.1.2018 ; and
(II) Sale value received or accruing as a result of the transfer of the capital asset.
Such capital gains would not be able to fetch the benefit of Chapter VI-A deductions and rebate u/s 87A.
7. Restricting the scope of Sec 54EC
As the provision of section 54EC, deduction is available on the capital gains arising from the transfer of a long-term capital asset, if invested in the long-term specified asset within a period of six months after the date of such transfer. Long-term specified asset means any bond issued on or after the 1st day of April, 2007 and redeemable after three years by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (RECL) or any other notified bond.
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Proposed Amendment: “Section 54EC is proposed to limit the exemption on capital gain arising from the transfer of a long-term capital asset only to capital gains arising from long-term capital assets, being land or building or both. Moreover, the period for redemption of long-term specified asset has been suggested to be increased from three years to five years,” informs Kedia.
8. No change in Tax rates & Basic Exemption Limit
Currently, for individuals (i.e. below 60 years of age), the basic exemption limit has been fixed at Rs 2,50,000. For Senior citizens (60 years to below 80 years), it is Rs 3,00,000 and for Very Senior Citizens(80 years and above), it is Rs 5,00,000. Further, for both men and women, this limit is at par.
Besides, “for the purpose of levy of the tax, three rates have been specified by the government. If your income is up to Rs 2.5 lakh, then you don’t have to pay any tax. If your income falls in the 1st slab (Rs 2.5 lakh to Rs 5 lakh), then tax rate is 5%. But if your income is in the 2nd slab (above Rs 5 lakh but limited to Rs 10 lakh), then 20% tax will be levied. Further, if your income is in the 3rd slab (above Rs 10 lakh), then the rate of tax is 30%,” informs CA Kamal Murarka, Head-Tax Research Team, Tax2win.in.
Proposed Amendment: No amendment has been proposed in the rates of tax slabs, basic exemption limit as well as the income slabs for all assessees except a company.
9. Raise in Cess
Currently, two cess are being levied on the amount of income tax. Education Cess @2% and Secondary and Higher Education Cess @1%, respectively.
Proposed amendment: A new cess in the name of Health and Education Cess is proposed to be levied @ 4% on the amount of income tax, including surcharge, in place of the existing ‘Education Cess’ and ‘Secondary and Higher Education Cess’ on income tax.
10. Stamp Value under transfer of immovable property
Currently, for the purpose of tax on income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, higher of the two is adopted. The difference is taxed as income for both purchaser as well as the seller.
Proposed Amendment: “In order to minimize hardship in the real estate sector due to variation in stamp duty, section 50C, 43CA & 56 are proposed to be amended that no adjustments shall be made where the variation between stamp duty value and the sale consideration is not more than 5% of the sale consideration,” says Murarka.
11. Rationalisation of adjustments during processing of return of income
As per the existing provisions, Section 143(1) provides for processing of return of income filed under section 139, or in response to a notice under section 142(1). At the time of processing of return, the total income or loss is computed after making the adjustment in respect of addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been considered in computing the total income in the return.
Proposed amendment: In order to restrict the scope of adjustments in processing of return, it has been proposed that the aforesaid adjustments shall not be made in respect of any return furnished for Financial Year 2017-18 and onwards.