income tax changes

Key Income Tax changes with effect from April 1st, 2018

March 29, 2018

Hello, in this post, we will discuss the key income tax changes that will come into effect from April 1, 2018, once the Parliament passes the bill.

Finance Minister, Arun Jaitley did not improve with the income tax slabs nor he raised the exemption limit in Budget 2018. But, there were some proposals that will impact on how much taxes you pay. 

Here are the key income tax changes that will be effective from April 1st, 2018 once the Parliament passes the Finance Bill.

  • Re-introduction of the standard deduction

In a relief to the salaried class, the FM has re-introduced standard deduction of Rs 40,000 from salary income. Also, even pensioners will be allowed to avail the benefit of this deduction. Central Board of Direct Taxes (CBDT) Chief Sushil Chandra has clarified that to avail this tax benefits one would not be required to submit any proofs or bills, it can be claimed straightaway.

  • Transportation allowance and medical reimbursements to become taxable

The tax benefit available on transport allowance and medical reimbursements has been taken away. Currently, transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000 per annum is exempted from the tax deduction. If the Budget will be passed by the Parliament, then starting from April 1st, 2018, these two allowances will become a taxable part of your salary.

  • Cess hiked to 4 percent

Cess levied on your tax liability has been hiked by 1% from the current 3% to 4%. This cess will be known as “Health and Education Cess.” Hence, if you have the net taxable income of Rs 5 lakhs, your tax liability will marginally increase by Rs 125. Similarly, someone with a net taxable income of Rs 15 lakh, their tax liability will increase by Rs 2,625. 

  • Introduction of tax on long-term capital gains (LTCG) on equity and equity-oriented mutual funds

Tax will be levied on LTCG arising from the sale of equity and equity-oriented mutual funds starting from April 1. Earlier, these gains were exempt from tax. It will be charged at a rate of 10% plus cess at 4%. However, to provide relief to small investors, LTCG up to Rs 1 lakh will be exempted from the tax per fiscal. 

In addition, gains accrued on the equity shares and equity-oriented mutual funds held till January 31st, 2018 will remain tax-exempt. The gains will be grandfathered.

  • Increase in the tax-exemption limit of interest income for the senior citizens

In order to provide relief for the senior citizens, Budget has proposed to increase the tax exemption limit on interest income for senior citizens from Rs 10,000 to Rs 50,000. Interest income will include interest earned from fixed deposits (FD) and the recurring deposits (RD). 

  • Raising the threshold limit for the TDS for senior citizens

Together with raising the limit of tax-exempted interest income for the senior citizens, an amendment is proposed in the tax deducted at source (TDS) TDS law. As per the proposed change, TDS will not be deducted from interest incomes up to Rs 50,000 a year for the senior citizens. 

  • Hike in the deduction limit on medical expenditure

It was proposed to raise the deduction limit u/s 80D and u/s 80DDB for senior citizens. U/s 80D, the limit has been proposed to be hiked from Rs 30,000 to Rs 50,000. Similarly, u/s 80DDB, the limit has hiked to Rs 1 lakh for all the senior citizens from Rs 60,000 (in case of senior citizens) and Rs 80,000 (for super senior citizens) 

  • Dividend distribution in case of the tax on equity mutual funds

Tax at the rate of 10% will be levied on the dividends distributed in case of equity mutual funds. However, this dividend will remain tax-free in the hands of investors. The tax will be deducted by the fund houses before the distribution of dividends. This will impact the investors who were relying on dividends from balanced funds as a source of income. 

  • Extension of Pradhan Mantri Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) proposed to be extended until March 31st, 2020. Along with the extension of the scheme, the maximum investment limit also has been proposed to increase to Rs 15 lakhs. 

  • Tax-exempt on NPS corpus for the self-employed

For self-employed individuals, it has been proposed to exempt 40% of the total amount payable from the tax upon closure of National Pension System (NPS). This tax benefit will bring self-employed individuals at par with the salaried class. 

This ends our post. Let us know your opinion by commenting below.

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