With several changes carried out in personal tax rates in last three years, the finance budget 2018 have kept the tax rates unaltered
With the success of the previous budgets, the Modi government has put forth their last budget before upcoming general elections promising improved rural infrastructure, promoting health care insurance and provide aid in agricultural sector for millions of poor. As Finance Minister, Arun Jaitley speaks on refining the economic growth of our country, he certainly has won hearts of senior citizens and the farmers.
Aam aadmi can now breathe a sigh of relief as the FM manages to bring a balanced budget without significantly modifying provisions applicable to the salaried class. However, the government has surprised investors by opening doors for taxation on long term capital gain on equity.
Keeping in mind the need to transform India in a formal economy, the following changes have been proposed in the budget:
Personal tax rates
With several changes carried out in personal tax rates in last three years, the finance budget 2018 has kept the tax rates unaltered. However, budget has proposed to re-introduce the standard deduction of Rs 40,000 per annum in lieu of prevailing transport allowance exemption of Rs 19,200 and medical reimbursements of Rs 15,000 subject to exception for differently-abled tax payers. Further, the existing education cess of 3 percent has been proposed to be replaced by Health and Education cess of 4 percent.
This would result into a tax savings of Rs 2,081 for a salaried individual, taxed at the maximum marginal rate of 35.88 percent.
Long term capital gain tax
To minimise the distortion of taxes upon transfer of long term capital assets such as equity shares of company or a unit of equity oriented fund or a unit of business trusts listed on recognised stock exchange, the budget 2018 has introduced tax on such long term capital gain at the rate of 10 percent on gains exceeding Rs 100,000.
However, the accrued long term capital gains upto January 31, 2018 will continue to be exempt from tax, and any gains arising post January 31, 2018 shall be subject to 10 percent tax on sale after April 1, 2018. Accordingly, the exemption continues for any sale of long term equity made prior to March 31, 2018.
Further, exemption on account of investment made in specified bonds under section 54EC which was earlier available on capital gains arising from transfer of any long term assets is now restricted only to capital gain arising on transfer of land or building or both. The lock in period of such eligible investment in bonds proposed to be enhanced from 3 years to 5 years.
Budget 2018 has provided a huge relief in the hands of senior citizens (above the age of 60 years) taxpayers by proposing following amendments:
- Deduction limit for health insurance premium or medical expenditure increased from Rs 30,000 to Rs 50,000.
- In respect of medical expenditure incurred on specified critical illness the existing separate deduction limits have been merged and raised to Rs 100,000 for all category of senior citizens.
- An additional boost for savings of senior citizens is provided by raising the limit of deduction on interest income earned from Rs 10,000 to Rs 50,000. The coverage of said deduction has been expanded to interest income earned from post office and bank deposits.
After success of the pilot project started in 2016, the Budget has paved the way for roll out of e-assessments on a PAN India level in order to reduce the human interface in processing of tax returns, time limits for assessment and due dates for filing belated and revised returns. This is a step closer for achieving the government’s target towards a Digital India.
Changes in Provident Fund and National Pension Scheme (NPS)
In order to boost the employment generation and more participation of women in employment, the government has proposed to contribute 12 percent of salary for new employees in all sectors and reduce women’s contribution towards to Provident Fund to 8.33 percent for first three years of employment with no reduction in employer’s contribution.
Additionally, the benefit of tax free withdrawal of 40% of total amount payable which was earlier applicable to employees has now been proposed to extend the exemption benefit to all tax contributors to NPS in order to bring parity.(The author is Tax Partner, People Advisory Services, EY India. Harsh Chhajer, Tax Manager, People Advisory Services, EY India has also contributed to this article.)
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