On 1st February 2018, Finance Minister Arun Jaitley announced the 5th Union Budget of Narendra Modi government. This was the last full Budget of the government before 2019 Lok Sabha Elections. GST Tax cuts on over 200 items and many other important announcements were made in this budget session of the Parliament.
According to the reports only, 1.7% of the Indians pay Income Tax (a little more than 2 crores). This is because of the fact that Richest 10% of Indians own 80% of the total wealth, while 336 million Indians live in extreme poverty.
All eyes were on the briefcase to know what’s going to come from it after two big financial decisions – Demonetization and Implementation of GST were implemented in the last couple of years.
Here we have made a list of 10 rules from the Income Tax department that will change from April 2018.
1: Rs. 40,000 standard deduction introduced:
For the benefit of 2.5 crore salaried employees, an additional deduction has been proposed to replace the existing 19,200 and 15,000 for transport allowance and medical reimbursement. This will also benefit the pensioners who don’t get any allowances for transport and medical expenses earlier. The salaried class will enjoy a flat 40,000 deduction from their taxable income after the introduction of this rule. This is not the first time this rule has been introduced, but it available for salaried individuals earlier, before it was abolished with effect from the assessment year 2006-07. It will depend on the tax bracket an individual falls in.
2: Pay more Cess:
Individual taxpayers have to pay a Cess of 4 percent in place of earlier 3 percent on the amount of income tax payable.
3: Long-term capital gains tax on equity investments introduced:
On the sale of equity share or units of equity oriented funds, exceeding Rs. 1,00,000 a new 10% tax (cess extra) will be applicable on capital gains. The government has grandfathered the gains till 31st January 2018 for the benefit of tax payers. So you have to pay tax on the gains only after 31st January 2018
4: Tax on dividend income from equity mutual funds:
Dividend distributed by equity-oriented mutual funds will be levied the tax at the rate of 10 percent.
5: Single premium health insurance policies will get more income tax benefits:
You get a certain type of discounts when you pay the premium for few years altogether, by the Health insurance companies. Earlier, the deduction of only up to Rs. 25,000 could be claimed by an individual but according to the update in Budget 2018, the deduction will be allowed on a proportionate basis for the number of years for which health insurance coverage is provided, subject to the specified limit in case of single premium health insurance policies.
For example, if you pay Rs. 40,000 for the two-year cover your insurer is offering a 10% discount on health insurance premium. Under the new changes, the individual can claim Rs. 20,000 in both years.
6: Income tax benefit on NPS withdrawal:
Non-employee subscribers can get an extension to the benefit of tax-free withdrawal from NPS (National Pension System). Currently, on the closure of or opting out, an employee contributing to NPS is allowed an exemption in respect of 40% of the total amount payable to him or her. This was not available for non-employee subscribers but will be available from the fiscal year 2018-19.
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7: Senior citizens will get a deduction in respect of interest income:
Higher interest income exemption limit on deposits in banks and post offices for Senior Citizens, including recurring deposits.
The investment limit in Pradhan Mantri Vaya Vandana Yojana or PMVVY has been proposed to increase by the government to Rs. 15 lakh from Rs. 7.5 lakh. The scheme is also proposed to extend until March 2020. This scheme, meant for senior citizens, offers a guaranteed interest rate of 8 percent.
8: Higher Tax deduction limit or TDS for senior citizens:
A straight hike from 10,000 to 50,000 is proposed on the threshold for tax at source on interest income for senior citizens.
9: Under Section 80D of the Income Tax Act for senior citizens, deduction limit would be higher:
It is proposed by the government in Budget 2018, to increase the deduction for senior citizens on payment of health insurance premiums. For individuals below 60 years of age, the deduction under Section 80D continues to be Rs. 25,000. But if their parents are senior citizens, above 60 years, they can claim an additional deduction of up to Rs. 50,000-taking the total deduction to Rs.75,000 (Rs. 25,000 + Rs. 50,000), higher than the current limit of Rs. 55,000.
10: Medical treatment of specified diseases for senior citizens hiked:
Medical treatment of specified disease is proposed to be hiked to Rs. 1 lakh for very senior citizen (earlier Rs.80,000) and senior citizen (earlier Rs. 60,000).
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