Making India Tax Wise

How a ULIP plan would be more desirable after Budget 2018

Union Budget 2018: 7 Key Highlights of Personal Income Tax

The budget every year brings important considerations that impact individuals across the country. There are several deductions available in the Budget which often allow individuals to save a lot more on their taxes as well as invest for their future. Here we bring you key highlights of the 2018 Budget and how it impacts your Income Tax.

  • Standard deduction for salaried group:-

    A standard deduction is basically a deduction allowed in income tax irrespective of the expense incurred or the investment made by the individual. No disclosures are required for this type of Income Tax Standard Deduction as it is allowed at a standard rate.

    The standard deduction in Budget 2018 has been introduced for a salary of Rs. 40,000 or above and is applicable from 1st April 2018. This deduction is allowed irrespective of the actual expense incurred by the employee. The employee is not required to submit any bills or proof to the employer for claiming the deduction. This deduction has been introduced in lieu of Transport Allowance & Medical Reimbursement which was earlier allowed to employees against bills as proof for claiming these benefits.

    Thus, the standard deduction of Rs. 40,000 replaces medical allowance of Rs. 15,000 and transport allowance of Rs. 1600 per month i.e. 19,200 per annum, in turn allowing for an additional benefit of Rs. 5,800.


    Example:-

    Particulars. Until AY 2018-19 From AY 2019-20
    Gross Salary (in Rs.) 5,00,000 5,00,000
    (-) Transport Allowance 19,200 Not Applicable
    (-) Medical Allowance 15,000 Not Applicable
    (-) Standard Deduction Not Applicable 40,000
    Net Taxable Salary 4,65,800 4,60,000
  • Relief for Senior Citizens:-

    The 2018 Budget also takes into account the considerations of Senior Citizens with the following provisions.

    1. Exemption of interest income on deposits with banks and post offices to be increased from Rs. 10,000 to Rs. 50,000 and TDS (Tax Deducted at Source) will not be required to be deducted on such income, under section 194A. The benefit of exemption will also be available for on interest from all fixed deposits schemes and recurring deposit schemes.

    2. The government has raised the limit of deduction for health insurance premium or medical expenditure from Rs. 30,000 to Rs. 50,000 under Section 80D. All senior citizens will now be able to claim the Rs. 50,000 per annum in respect of any health insurance premium or any general medical expenditure incurred.

    3. The limit of deduction for medical expenditure in respect of certain critical illness has been raised from Rs. 60,000 in case of senior citizens and from Rs. 80,000 in case of very senior citizens, to Rs. 1 lakh in respect of all senior citizens, under section 80DDB.

  • Increased education cess from 3% to 4%:-

    Furthermore, the cess has been hiked by 1%, in the name of Health Cess, making it effectively 4% ‘Health and Education Cess’. As of now, an education cess of 3% was levied on personal income tax. While this move may help the government in meeting the healthcare and education needs of the rural families, it is certain that the tax liability of both individuals and corporates will increase.

  • Long Term Capital Gain on Equity and Equity Oriented Fund:-

    The new tax will be levied on redemption of equity mutual fund units or sale of shares after April 1, 2018, provided they have been held for more than one year. The long-term capital gains exceeding Rs. 1 lakh arising from redemption of mutual fund units or equities on or after April 1, 2018 will be taxed at 10%, without any indexation benefit. However, the gains up to 31st January 2018 will not attract the said tax to the extent of the fair market value as on 31 January 2018.

    According to the income tax department, the cost of acquisition for the long-term capital asset acquired on or before 31st of January, 2018 will be the actual cost. However, if the actual cost is less than the fair market value of such an asset as on 31st of January, 2018, the fair market value will be considered to be the cost of acquisition.

    Further, if the full value of consideration on sale is less than the fair market value, then such full value of consideration or the actual cost, whichever is higher, will be considered to be the cost of acquisition.

    • Scenario 1:-

      Purchase price on January 1, 2017 is Rs. 100
      Price on January 31, 2018, is Rs. 200
      Sold on March 31, 2018, at Rs. 250
      Since it is sold on or before March 31, 2018, there is no tax liability.

    • Scenario - 2

      Purchase price on January 1, 2017 is Rs. 100
      Price on January 31, 2018, is Rs. 200
      Sold on April 1, 2018, at Rs. 250
      As the investment is sold after March 31, it will attract long-term capital gains. Since the actual cost of acquisition is less than the fair market value as on 31st of January, 2018, the fair market value of Rs. 200 will be taken as the cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 250 - Rs. 200).

    • Scenario- 3

      Purchase price as on January 1, 2017 is Rs. 100
      Fair market value is Rs. 200 on 1st of January, 2018 v
      Sold on 1st of April, 2018 at Rs. 150
      Here, the actual cost of acquisition is less than the fair market value as on 31st of January, 2018. The sale value is also less than the fair market value as on 31st of January, 2018. So, the sale value of Rs. 150 will be taken as the cost of acquisition and the long-term capital gain will be NIL (Rs. 150 - Rs. 150).

    • Scenario- 4

      Purchase price on 1st of January, 2017 is Rs. 100
      Fair market value is Rs. 50 on 31st of January, 2018
      Sold on 1st of April, 2018 at Rs. 150
      In this case, the fair market value as on 31st of January, 2018 is less than the actual cost of acquisition. So the actual cost of Rs. 100 will be taken as actual cost of acquisition and the long-term capital gain will be Rs. 50 (Rs. 150 - Rs. 100).

    • Scenario- 5

      Purchase price on 1st of January, 2017 at Rs. 100
      Fair market value on 31st of January, 2018 is Rs. 200
      Sold on 1st of April, 2018 at Rs. 50
      The actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as the cost of acquisition in this case. Hence, the long-term capital loss will be Rs. 50 (Rs. 50 - Rs. 100) in this case.

  • Reduction of corporate tax rate from 30% to 25%:-

    This has been a relief for Micro, Small & Medium Enterprises (MSME’s) as the government had declared to decrease corporate tax rate to 25% in the Union Budget of 2017.

  • Deductions not to be allowed unless return is filed by the due date:-

    The benefit of deduction under the entire class of deductions under the heading “C.—Deductions in respect of certain incomes” in Chapter VIA shall not be allowed unless the return of income is filed by the due date.

  • Employee Provident Fund:-

    • For new EPF accounts, women’s’ contribution has been reduced to 8% with no change in employers contribution for first three years of their employment.
    • The Government would contribute 12% of the wages for new employees for the next 3 years in all the sectors.

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