1->Tax Slabs Remain Unchanged It was a mixed feelings for the tax payers when they heard about the tax slabs remain unchanged. The 2018- Budget proposed that the tax slabs for the Income computation will remain unchanged for the FY 2018-19 which is as below:
0- 2,50,000 – Nil Tax
2,50,001 – 5,00,000 – 5%
5,00,001 – 10,00,000 – 20%
More than 10,00,000 – 30%
2->Cess on income tax hiked from 3% to 4%
In this 2018- Budget the cess on the income tax has been increased from 3% to 4%. An Individual is not happy with this as this will increase his/her income tax liability. Again this is not good news for the individuals in purview of their tax. This surcharge of 1% will be known as Health cess. Other cess will be remained same as 3% and named as Education cess.
3->Standard deduction reintroduced and makes it to Flat 40,000/-
This is good news for all as in 2018- Budget, the standard deduction is introduced. It will make a huge impact on the revenue system. It gives relief up to some extent to the Tax payers.
4->Medical Reimbursement and Transport Allowance knocked out
We all knew that there is an exemptions U/s 10 regarding the Medical reimbursement of Rs.1250/-per month and transport allowance of Rs.1600/-per month which sum up to
Rs. 34200/- per year. In 2018- Budget, the Exemptions U/S 10 regarding Medical Reimbursement of Rs. 15,000/- per year and regarding Transport allowance/ Conveyance (Transport expenses to commute from home to office and office to home) of Rs. 19,200/- has been knocked out for FY 2018-19.
5->Rebate Under chapter 87 A has been knocked out
For the Financial Year 17-18, there is a provisions regarding the rebate under chapter 87 A. According to this provisions if a person who has salary from Rs. 2,50,001/- to 3, 50, 000/- for FY 2017-18, is eligible for a rebate under chapter 87A of Rs. 2,500/- on Income Tax amount.
A person whose income for FY 2017-18 is Rs. 3,40,000/-. Then his Tax would be calculated as below:
Tax upto Rs. 2,50,000/- -> NIL
Tax for Rs. 2,50,001/- to Rs. 3,40,000/- -> 90000 x 5%
Rebate Under chapter 87A – 2500/-
The Net Tax payable will be Rs. 2000/-
But in 2018- Budget, for the next FY means FY 2018-19, The rebate under 87A would not be provided.
Important Inference from points 3,4 & 5
If we study in details about the point 3, 4 & 5, we found that there is not much changes with this effects. But definitely the person who earns more than 2,50,000/- and up-to Rs, 3,50,000/- will pay more taxes than earlier.
Let us clear it with an example:
Mr. A who is earning Rs. 3,60,000/- for the FY 17-18 and we are assuming the same salary with the FY 18-19 also. So the effects of A’s Tax liability with respect each FY will be as below:
Exemptions U/S 10 of Medical Reimb. & Transport Allow. à Rs.34,200
so taxable income à 3,60,00 – 34,200 = 3,25,800
Now tax computation
0- 2,50,000 -> NIL
2,50,001 to 3,25,800 -> 75,800 x 5%
Rebate Under chapter (2,500)
Tax à Rs. 1,290/-
Exemptions U/S 10 of Medical Reimb. & Transport Allow. à Rs.0
But Standard Deduction à Rs. 40,000/-
so taxable income à 3,60,00 – 40,000 = 3,20,000
Now tax computation
0- 2,50,000 -> NIL
2,50,001 to 3,20,000 -> 70,000 x 5%
Rebate Under chapter (0)
Tax à Rs. 3,500/-
This means that after 2018- Budget, this person is paying extra tax of Rs.2, 210(=3,500 – 1,290).
6->Changes Regarding EPF Contributions
There was an important consideration regarding EPF contribution has been made for the new employee especially a new women employee in 2018- Budget. EPF contribution of new women workers capped at 8% and no change in Employer’s contribution of 12% for the next 3 years. Further, for new employees coming under the ambit of EPFO would be provided 12 percent contribution from the government for the next 3 years.
This means that the new employee will get their Employer contribution from Government for the next 3 years whose PF is set up for the first time. Again there is a condition for this for such employee wages (Basic and DA) should not increase Rs. 15,000/- . This is done only to promote employment in the country. Further the contribution from new women employee has been capped at 8% only. It only effects on their take home salary as through this their take home salary will increase but the amount invested in PF account would be less.
7-> Re-introduce LTCG tax on gains on shares or mutual fund
This 2018- Budget proposed to re-introduce long-term capital gains (LTCG) tax on gains arising from the transfer of listed equity shares exceeding Rs 1 Lakh at 10 percent, without allowing any indexation benefit. However, all gains up to January 31, 2018 will be exempt. While Short term capital tax remains at 15%.
8-> For Senior citizen Section 80 (D) deduction amount has increased to 50,000 from 30,000
This is a good news for all taxpayers as the amount eligible for deduction under section 80 (D) towards medical insurance premium for senior citizen has been revised from Rs. 30,000 to Rs. 50,000. As every tax payers mostly senior citizen incurred high medical insurance premium during later ages so 2018-Budget gives some relief to senior citizen people for their 80(D) limit.
9-> For Senior citizen Section 80 (TTA) deduction amount has been increased to 50,000 from 10,000
It has been proposed to hike the exemption on the interest income on bank and post office deposits for senior citizens from Rs. 10,000 to Rs. 50,000. This is for all FDs and RDs. This is really required as if we think practically at older ages the income from Bank deposits are high so it is the necessary step in 2018-Budget to give relief to senior citizen.
10-> NPS exemptions has been knocked out
The exemption of first time investment in NPS U/S 80 CCD has been knocked out in 2018- Budget and all deductions of 80 C, 80 CCC, and 80 CCD has been limit to Rs. 1.5 Lakhs. Earlier there was a provision regarding NPS if one person is investing in NPS first time than he was getting extra deductions above all 80 C, 80 CCC. But at 2018-Budget the deductions for NPS has been knocked out.
11-> Surcharge remained unchanged for Income exceeds Rs. 50 Lacs and 1Cr
2018- Budget does not make changes for the surcharge taken on income tax if Total Income exceeds Rs. 50 Lacs and Rs. 1 Cr. The Surcharge for income exceeds Rs. 50 Lacs was 10% and for income exceeds Rs. 1 Cr was 15% which is remained unchanged for FY 2018-19.
12-> Others Highlights of 2018- Budgets
- The FM has proposed to increase the investment limit the pension scheme, Pradhanmantri Vaya Vandana Yojana (PMVVY), to Rs 15 lakh from the present Rs 7.5 lakh.
- FM Arun Jaitley says propose to allow 100% tax deduction to companies registered as farmer-producer companies with a turnover of Rs 100 crore.
- It has been proposed to introduce a dividend distribution tax on equity-oriented mutual funds at the rate of 10% percent, to provide a level field across growth oriented and dividend distributing schemes. This reduces the investor’s in-hand return.
- Customs Duty on certain products, such as mobile phones and televisions has been increased, to provide an edge to ‘Make in India’.
- A sum of Rs 500 Cr will be allocated for Operation Green which is to be launched. It will promote agricultural products.
- Government has been planned to increase digital intensity in education. So in this 2018- Budget, there is more investment on technology for the education sectors. This will be the biggest driver in improving quality of education.