Although no changes were made in the income tax rates for individuals, in view of the many positive changes made by the Modi government in the personal income tax rate during the last three years, Finance Minister Arun Jaitley – while presenting the Union Budget 2018-19 — had proposed some changes in the tax rules which will become effective from today, ie, April 1, 2018, which is also the beginning of the new financial year 2018-19. Here we are taking a look at five such changes which will impact the tax outgo of individual taxpayers:
1. Re-introduction of Standard Deduction
Salaried as well as pensioner individuals can now avail the benefit of standard deduction of Rs 40,000, in lieu of exemptions for transport allowance and medical reimbursements, except in the case of differently-abled persons for whom transport allowance rates have been enhanced. The re-introduction of standard deduction is basically a compensation to salaried persons for withdrawing exemptions for transport allowance and medical reimbursements, i.e. standard deduction of Rs 40,000 from salary income is marginally above the aggregate of the withdrawn exemptions of Rs 34,200 (i.e. Transport Allowance Rs 19,200 + Medical Reimbursement Rs 15,000). “Therefore, the net reduction in taxable income will be only 5,800 (Rs 40,000 minus Rs 34,200), subject to the burden of 1% additional cess on total salary income. However, standard deduction will significantly benefit the pensioners and salaried persons not claiming or being eligible for transport allowance and medical reimbursements,” according to the Institute of Chartered Accountants of India (ICAI).
2. Exempt Interest Income up to Rs 50,000
With the objective of providing a dignified life to senior citizens, the Budget 2018 came out with significant incentives for senior citizens and very senior citizens. Now they can get exemption of interest income on deposits with banks and post offices up to Rs 50,000 (from Rs 10,000 earlier) without TDS under Section 194A. For this purpose, a new IT Section 80TTB has been inserted to provide deduction for interest income up to Rs 50,000. This benefit will also be available on interest income from all fixed deposit and recurring deposit schemes.
3. Enhanced Limits for Health Insurance
A deduction of Rs 30,000 on the premiums paid for health insurance for senior citizens was earlier allowed. Now the limit of deduction for health insurance premiums and medical expenditure has been raised to Rs 50,000 u/s 80D of the Income Tax Act. All senior citizens will now be able to claim the benefit of deduction up to Rs 50,000 per annum in respect of any health insurance premium and/or any general medical expenditure incurred. Moreover, all senior citizens and very senior citizens will now be able to claim deductions up to Rs 100,000 for medical expenditure incurred in respect of certain critical illnesses under Section 80DDB. This limit was earlier Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens.
4. Taxability of Long Term Capital Gains on Equity Shares
Till now long-term capital gains (LTCG) arising out of sale of equity shares and equity-oriented mutual funds were tax free under Section 10(38) of the I-T Act, provided the transactions were carried out on a recognized stock exchange and were liable to STT (securities transaction tax). However, Section 10(38) has now been withdrawn and a new Section 112A has been inserted w.e.f AY2018-19. With this, taxpayers and investors will have to pay 10% tax on such long-term capital gains exceeding Rs 1 lakh in a year. Also, they won’t be able to avail any benefit of indexation.
5. Health and Education Cess
Although the Union Budget 2018-19 didn’t propose any changes in the income tax rates, which continue to remain the same for AY 2019-20 as applicable for AY 2018-19. However, as per its proposals, a new cess, ie, Health and Education Cess, will now be levied @4 per cent of income tax — including surcharge — in place of the earlier 3 per cent Education, Secondary and Higher Education Cess with effect from FY2018-19.