The government gave only small relief from the burden of income tax. That too only to the salaried class. There is no change in income tax slab. The limit of tax-free income is still at 2.5 lakhs. The 80C deduction limit is also at 1.5 lakhs. Only senior citizens have got some extra deduction for the interest income.
Following are the budget highlights of the FY 2018-19. I have given emphasis to the Income tax.
Budget 2018 Highlights
1- Standard Deduction For Salaried
The salaried class would now get the benefit of the Standard Deduction. This deduction is reduced from your taxable salary while calculating the income tax.
The standard deduction would be uniform ₹40,000 for all of the salaried employee and pensioners.
However, along with the standard deduction, the government has withdrawn the tax benefit of medical and transport allowance. Earlier, we were getting tax exemption on these allowances. The transport allowance up to ₹19,200 and medical allowance up to ₹15,000/year was eligible for income tax exemption.
Thus, after factoring the withdrawal of these exemptions, The real benefit of standard deduction would be only ₹5,800 – (40,000 -(15,000+19,200)). In actual term, there would be the profit of only ₹290 if you are in the 5% income tax slab.
|Profit because of Standard Deduction in FY 2018-19|
|Reduction in Tax||₹290||₹1,160||₹1,740|
2- More Cess
The government has given small relief to the salaried class but there is more tax on the general public. It has increased the cess for each income taxpayer. Now, you have to pay 4% cess along with the income tax. The Cess is charged on income tax. Thus this 4% would be of the applicable income tax.
- Earlier the government is charging Cess for primary and higher education. Now, this 4% cess has a new name. It would be called as the education and Health cess.
- The increased cess would offset some of the benefits from the standard deduction.
- If you are paying 10,000 income tax the cess would be ₹400, earlier it was ₹300. So there is an increase of ₹100 on the tax of ₹10,000.
3- Long-Term Capital Gains Tax on Shares
Acche Din Has ended for the equity investment. The government has brought the equity investment under the long-term capital gains tax.
- There would be 10% long term capital gains tax on Equity (shares) and Equity mutual funds. There was 0% long-term capital gains on equities since last many years.
- This tax would be applicable if your total gain from the equity-based investment exceeds ₹ 1 lakh in a year.
- Unlike bonds and debt mutual funds, you would not get the benefit of indexation.
4- Tax On Equity Mutual Fund Dividend
In the pattern of Long-term capital gains tax, there would be a tax on Dividend payout by the equity mutual funds.
The tax rate on dividend payout by the mutual funds would be 10%
Read More: Mutual Fund Tax Benefit Guide and Latest Rates
5- More Deduction For Senior Citizens
There is good news for senior citizens who put most of their money into the Saving or fixed deposit account. The government has increased the tax deduction for bank interest.
The government would give a benefit of tax deduction on the bank account interest of upto ₹50,000. As of now, the government gives the deduction of ₹10000 on bank interest. But now the senior citizens would get the benefit of ₹50,000 instead of the 10,000.
Also, there would not be any TDS deduction by the bank up to the interest income of ₹50,000. Note, this relief is given only to the senior citizens.
6- Higher Health Insurance Deduction for Senior Citizens
The government gives income tax deduction for health insurance under section 80D. Now, under this section, the senior citizen would get the deduction of upto ₹50,000. Earlier it was permitted up to ₹30,000.
- It means, there would be income tax deduction of upto ₹50,000 for the health insurance premium of senior citizen and his/her spouse.
- The son or daughter can also claim this deduction if they are paying premium from their pocket.
- For individuals below 60, this deduction is only 25,000.
7- More Deduction For Specified Diseases
The government gives a tax deduction to senior citizens for the treatment of some specified disease. In the budget 2018, the government has increased the limit for this deduction.
Now, you can claim a deduction of up to ₹1 lakh for the expense of specified diseases.
Earlier, this limit was ₹60,000 for senior citizens and ₹80,000 for super senior citizens. Now both have a limit of 1 lakh.
8- Relaxation on EPF Contribution
New women employee would get higher take-home salary as EPF deduction would be 8% for the first 3 years. For a normal employee, the EPF contribution is fixed to 12% of the salary. However, the employer would keep contributing 12% of the female employee’s salary.
The government already contributes 12% of the employer’s part for the first 3 years.
9- Corporate Tax Rate Reduced
As promised, the government has reduced the corporate tax rate. The reduced rate is only applicable if your turnover is less than 250 crore per year. For all other corporates, the income tax rate is 30%.
10- Health Insurance For Poor
The government has announced the National Health Protection Scheme which would give the health insurance to 10 crore families. This scheme would give insurance cover of 5 lakh per year.