The Budget 2018 brought back standard deduction which was scrapped in Budget 2005.
It was widely believed that the Union Budget 2018 will bring back standard deduction in the range of Rs 50,000 to Rs 1 lakh. The Budget 2018 brought back standard deduction which was scrapped in Budget 2005. While introducing the standard deduction of Rs 40,000, the Finance Minister did away with the medical allowance and the transport allowance, except for differently abled persons. The introduction of deduction will save a few rupees in taxes for the salaried class and reduce the administrative hassles of submitting the medical bills. The provision of Rs 40000 towards standard deduction is also inadequate, as it was capped at Rs 30000 in FY2004-2005, in its earlier avatar.
There was an expectation that the tax slabs will be revised upwards and there will be less impact on the salaried individuals. In Budget 2016 the Finance Minister chose to reduce the income tax rate to 5% as compared to 10% earlier. There was also an expectation that the investment limit under section 80C of the Income Tax Act will be hiked to Rs 2 lakh from extant Rs 1.5 lakh. However, the Finance Minister declined to change the tax slabs of income tax and the limit under section 80C. This means that the tax liability will remain unchanged for the salaried individuals.
The Finance Minister decided to tax the long term capital gains on listed shares at the rate of 10%. The dividends payable on the equity mutual funds have also been taxed at 10%. This will reduce the post-tax returns of individuals investing in shares.
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