The Budget 2018 failed to do much for taxpayers as well as the salaried class. However, some sections of society, particularly senior citizens, gained much from its proposals. Whatever be the case, as a taxpayer we need to be aware of the tax proposals of this year’s Union Budget as they are going to impact our earnings as well as the day-to-day lives from the upcoming financial year (2018-2019). Here we are taking a look at 10 such tax rules which will change from 1st April 2018.

1. Health and Education Cess

The Budget 2018 didn’t make any changes in the tax rates or tax slabs for individuals and HUFs, which continue to remain the same for Assessment Year 2019-20 as applicable for AY2018-19. However, it has proposed a new cess – Health and Education Cess – which will be levied at the rate of 4% of income tax, including surcharge, in place of the current 3% Education, Secondary and Higher Education Cess from Financial Year 2018-19 onwards.

2. Reintroduction of standard deduction

At present no standard deduction is available for salaried employees. However, exemption in respect of transport allowance and reimbursement of medical expenses is provided. The Budget 2018 has proposed a standard deduction of a maximum of Rs 40,000. However, the current exemption in respect of transport allowance and reimbursement of medical expenses will be withdrawn. The net benefit will only be Rs 5,800.

3. Deduction in respect of interest earned by senior citizen

Currently, a deduction up to Rs 10,000 is allowed to all individuals in respect of interest income from deposit accounts (not being time deposits) held with any bank, co-operative society and post office.

It is proposed to allow a deduction up to Rs 50,000 in respect of interest income from deposits held with banks, co-operative society and post office by senior citizens. No separate deduction will be available under section 80TTA for interest income from savings account for senior citizens.

4. Medical treatment of senior citizens for specified diseases (Sec 80DDB)

Under the existing provisions, deduction is available to resident individuals and Hindu Undivided Family (HUF) for any amount incurred for the medical treatment of specified diseases (i.e. malignant cancers, AIDS, etc). The deduction is limited to Rs 60,000 for expenses relating to senior citizens and Rs 80,000 with respect to very senior citizens. The Budget has proposed to enhance the above deduction limit to Rs 100,000 uniformly for both categories.

5. Enhanced deduction for health insurance, medical expenditure related to senior citizens (Section 80D)

Under the existing provisions, a maximum deduction of Rs 30,000 is allowed to an individual or HUF for payment towards health insurance premium including Rs 5,000 towards preventive health check-up for resident senior citizens. Alternatively, very senior citizens can claim a deduction of Rs 30,000 for payment towards medical expenses where there is no insurance. The Budget 2018 has proposed a maximum deduction of up to Rs 50,000. Besides senior citizens can also claim the deduction for medical expenditure.

6. Compensation on termination or modification of employment

Currently, certain compensation in connection with employment is out of the purview of taxation, leading to base erosion and revenue loss.

“It is proposed that any compensation or other payments due to or received by any person in connection with the termination or the modification of the terms and conditions of any contract relating to his employment shall be taxable under the head income from other sources,” according to a Deloitte report.

7. Extending the benefit of tax-free withdrawal from NPS

At present, an employee contributing to the National Pension System (NPS) is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. This exemption was not available to non-employee subscribers. The Budget 2018 now proposes to extend the said benefit to all NPS subscribers.

8. Taxability of Long-Term Capital Gains on equity shares

The Budget 2018 has proposed 10% tax on the long-term capital gains (LTCG) arising out of the sale of equity-oriented mutual fund (MF) schemes as well as equity shares, in case of capital gains exceeding Rs 1 lakh in a year. Also, no benefit of indexation will be given.

9. Exemption from taxation of long-term capital gains invested in specified bonds

Deduction under section 54EC is available in respect of capital gain, arising from the transfer of a long-term capital asset, invested in the long-term specified asset at any time within a period of six months after the date of such transfer. Long-term specified asset means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (RECL); or any other bond notified by the Central Government. Now Section 54EC is proposed to restrict the exemption in respect of capital gain arising from the transfer of a long-term capital asset, being land or building or both only and not other capital assets. Further, it is proposed to allow the benefit when the redeemable period of specified bonds is 5 years.

10. Taxability of single premium health insurance policies

In case of single premium health insurance policies having the term of more than a year, the Budget 2018 has proposed that deduction should be allowed on proportionate basis for the number of years for which the cover is provided, subject to the specified monetary limit.

Author Bio

Qualification: CA in Practice
Company: SRP GLOBAL CONSULTANTS
Location: NEW DELHI, New Delhi, IN
Member Since: 13 Mar 2018 | Total Posts: 6
FCA. Amarjit Singh having vast and diversified experience of 10 years in the field of direct taxation, indirect taxation and GST View Full Profile

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18 responses to “10 Important Income Tax Change with effect from 1st April 2018 ( FY 18-19 )”

  1. Yatin Thaggarse says:

    For those previously employed with private companies:

    (a) Can annuities from LIC superannuation schemes started by former employer be considered for standard deduction?

    (b) Are annuities from.LIC Jeevan Suraksha deductible for standard deduction?

    (c) How about annuities for policies like LIC Varishta Pension, are they standard deductible?

    Can a,b,c be clubbed together for standard deduction benefit? These questions for senior citizens.

  2. S krushnun says:

    Is Annuity say from LIC that pays monthly a Penion to be treated under salaries qualify for Std Deduction for Fy 2018-19.

  3. J k SOBTI says:

    You missed out on the Grand fathering rule while talking about the Reintroduction of LTCG

  4. Mahesh.H.M.M says:

    It is good that medical is removed. For telephones there is no cap. Many companies are giving exemptions according to their whims and fancies. Employees are giving fake bills.
    LTA there is no logic, this should be made once a year with a cap instead of 2 times in a block of 4 years. Who will keep track? IT department will not touch those papers.
    When our FM will bring these rules?

  5. Ayush Kedia says:

    Hi,
    Can you please clarify if LTCG on sale of unlisted equity shares also be taxed at 10%?

  6. Y P Shrivastav says:

    It would have been nice if for various amendments , the relevant new sections of the IT Act or the affected / amended old sections of the IT Act also would have been stated. I request the author to please do the needful . Thanks for a very good post .

  7. RAM MANOJ KUMAR says:

    very simple & useful,

  8. Ramesh Chandra Sinvhal says:

    In article – “10 Important income Tax rules change with effect from April 2018 ( AY 2018-19)” .
    AY should have been AY 2019-2020 or it should have been FY 2018-19.
    Please Check and correct.
    Thanks

  9. AJAY SHUKLA says:

    para 3. “Deduction in respect of interest earned by senior citizen” is confusing.
    Is interest on fixed deposits also included?
    Is interest on NSC included?

  10. Meenakshi says:

    Well written

  11. Meenakshi says:

    Well written.

  12. tridib says:

    useful for layman’

  13. G D Binani says:

    LTCG proposal is disturbing one for Senior Aged Stock Investors and the same has been pointed out to FM

    G D Binani
    7976870397 / 9829129011

  14. VINOD KUMAR GUPTA says:

    Amarjit very nicely elaborated .
    CA VINOD KUMAR GUPTA

  15. Mayank Mohanka, FCA says:

    Good Article but the title speaks about 10 Income Tax Rules which are going to be changed from 1.4.2018, so definitely it raises interest & curiosity about the article but the article discusses only about 10 common amendments proposed in Finance Bill 2018. The difference between amendments in sections in Finance Bill & those in Income Tax Rules, needs to be understood.

  16. srinath says:

    Very crisp and well articulated

  17. teja says:

    sws (social welfare surcharge) accounting code..??

    to remit the same in GAR – 7 challan…

    pls help..

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