From April 1, a large number of Indians will see significant changes in their financial life. April 1 is the first day of the new financial year, 2018-19. The Budget proposals for the new financial year, announced on February 1, will come into force from today itself.
Below are the key changes which are going to affect individuals as well as companies:
All taxpayers
All taxpayers will pay a bit of more tax due to hike in and education cess. Budget 2018 had proposed to hike cess on income tax from 3% to 4% thereby increasing the tax payable by all categories of tax payers. Due to this change, the tax liability for highest tax bracket (assuming Rs 15 lakh income) goes up by Rs 2,625. For the middle income tax payers (between Rs 5 lakh and Rs 10 lakh), tax liability increases by Rs 1,125 and for the lowest bracket (Rs 2.5 lakhs to Rs 5 lakhs) by Rs 125
Senior citizens
If you have lots of money earning interest, you need not bother about tax as much as you used to. The exemption limit on income from interest for senior citizens will now be five times higher to Rs 50,000 per year. Those planning to upgrade or buy insurance will benefit from higher limit of deduction for health insurance premium and medical expenditure which has been raised to Rs 50,000 from Rs 30,000 under section 80D of the I-T Act.
Investors
Investors will pay tax on long-term capital gains (LTCG) exceeding Rs 1 lakh from sale of shares. However, indexation benefit for computing tax liability on sale of shares listed after January 31 will be available.
The salaried and the pensioners
The Budget proposed a standard deduction of Rs 40,000 in lieu of transport allowance and medical reimbursement. This will kick in from April 1. Presently, no tax is applicable on Rs 19,200 of transport allowance and medical expenditure of up to Rs 15,000. This has now been subsumed into the new standard deduction of Rs 40,000.
Small businesses
If the turnover of your company is up to Rs 250 crores, you have a big reason to cheer. You will pay less corporate tax, at 25 per cent. As 99 per cent of the tax-filing companies fall in this bracket, this is really a big change.
All companies
Every company will have to adopt more detailed revenue recognition ways from April 1 as the government has notified a new accounting standard. Indian Accounting Standard (Ind AS) 115 would be effective from the new financial year, that is tomorrow. Once it is in force, the other two standards, Ind AS 18 and 11, which are related to revenue and construction contracts, would be withdrawn.
Drivers
If you drive on national highways, get ready to pay more from April 1. National Highways Authority of India has revised its toll rates by 5 to 7 per cent. The rates have been revised on the basis of Wholesale Price Index (WPI) and may vary from one toll plaza to another in the same region.
Transporters
The businesses that transport goods worth over Rs 50,000 from one state to another will have to carry an electronic or e-way bill from April 1. An anti-evasion measure that would help boost tax collections by clamping down on trade that currently happens on cash basis, the e-way bill provision of the Goods and Services Tax (GST) was introduced on February 1.
Standard Deduction
From the new financial year onwards, you will get a standard deduction of Rs 40,000 on your taxable income. But this will not add much to your tax savings as the government has simultaneously taken away tax exemptions on the transport allowance of Rs 19,200 per annum and medical reimbursement of Rs 15,000 a year. The math shows that salaried class will have a marginal benefit of just Rs 5,800 on their taxable income.
Long Term Capital Gain (LTCG)
You will no more enjoy tax-free status on equities even if you stay invested for more than one year. This is because, from 2018-2019, 10% tax (without any indexation benefit) will be levied on long term capital gains exceeding Rs 1 lakh. The gain from equities is clubbed as short term if holding period is less than one year and long term if it is held for one year and more from the date of purchase.
It is, however, important to note that your gains will be exempted until January 31, 2018 , after which all your gains will get taxed. Arun Jaitley, the Finance Minister, said in his budget speech, “If an equity share is purchased six months before January 31, 2018 , at Rs 100 and the highest price quoted on January 31, 2018, in respect of this share is Rs 120, there will be no tax on the gain of Rs. 20 if this share is sold after one year from the date of purchase. However, any gain in excess of Rs20 earned after January 31, 2018, will be taxed at 10 per cent if this share is sold after July 31, 2018. The gains from equity share held up to one year will remain short-term capital gain and will continue to be taxed at the rate of 15 per cent.”
LTCG is calculated by subtracting the cost price from the sale price of the share. While sale price is the market price at which you sell your share, the cost price needs to be adjusted if bought before February 1, 2018. According to new income tax rules, it shall be higher of
a) the actual cost of acquisition ; and
b) the lower of (i) the market value as on January 31, 2018 and (ii) the sale price of the share
Moreover, LTCG will be levied over and above securities transaction tax or STT, which is levied on transactions in shares, bonds and debentures.
Dividend Distribution Tax (DDT)
If you were buying dividend option of balanced funds to earn tax-free income every month, you won’t be able continue with it. This is because from now onwards 10 per cent DDT will be levied on dividend option of equity funds.
Interest Income
For senior citizens the exemption limit on fixed and recurring deposit has been increased to Rs 50,000 from Rs 10,000. This means TDS will not be deducted on interest income of upto Rs 50,000. For interest income above Rs 50,000 tax will be deducted at source for senior citizens. Having said that, interest income from savings account will continue to be tax-free for the amount upto Rs 10,000
Health Insurance
The deduction limit for senior citizens under section 80D has been increased to Rs 50,000 from the earlier level of Rs 30,000. Considering premium rates are very high for senior citizens, an increase in the deduction limit would allow you to claim higher deduction on a health insurance policy bought for your parents.
Pradhan Mantri Vaya Vandana Yojana
Pradhan Mantri Vaya Vandana Yojana is a pension scheme for senior citizens, which is offered by Life Insurance Corporation of India (LIC). The existing investment limit under the plan has been increased to Rs15 lakh from the limit of Rs 7.5 lakh. The scheme offers pension at a guaranteed return of 8 per cent over the period of 10 years
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I request the author to confirm the following statements in the article, as my understanding of the budget proposals is different:
1.” The exemption limit on income from interest for senior citizens will now be five times higher to Rs 50,000 per year. ”
2. “For senior citizens the exemption limit on fixed and recurring deposit has been increased to Rs 50,000 from Rs 10,000. This means TDS will not be deducted on interest income of upto Rs 50,000. For interest income above Rs 50,000 tax will be deducted at source for senior citizens. Having said that, interest income from savings account will continue to be tax-free for the amount upto Rs 10,000.”
My understanding:
Item 1: The exemption limit of upto Rs 10,000/- is only for interest on savings bank accounts and does not apply to other interest such as from fixed/recurring deposits. (Sec 80TTA). This applied to all assessees, including non-senior citizens, till the introduction of Section 80TTB.
Item 2: Sec 80TTB introduced in the budget for FY 2018-19 applies to senior citizens. Thus, senior citizens will be able to claim a maximum of Rs 50,000/- under this section towards interest from their bank deposits (including savings bank, fixed deposits, recurring deposits, post office savings deposits) for FY 2018-19. However, the existing deduction of upto Rs 10,000/- being interest from savings bank deposits (under Section 80TTA) will not be available to senior citizens in addition to Section 80TTB (which is specifically meant for senior citizens). Exemption of interest on savings bank deposits upto Rs 10,000/- will therefore be available only to assessees other than senior citizens as they wont get the benefit of Section 80TTB.
Till assessment year 2018-19 deduction of Rs.30,000/- for medical insurance was available to senior citizens(above 60 years) but not for medical expenditure. However, it was available for very senior citizens(above 80 years). Please clarify whether deduction for medical expenditure(not medical insurance) of Rs.50,000/- is now available to senior citizens.
Nice Article.
Thank You.