Negative impact for Assessee’s, it was not expected at all

Honorable Finance Minister has not changed tax slabs for resident Individuals or HUF’s, however currently a Cess of 3% on income tax and surcharge was payable as Education Cess and Secondary Higher Education Cess which has been replaced with 4% Education and Health Cess. For those having taxable income of Rs. 10 lakhs, net tax outflow will increase by Rs. 1125 and the same will keep on increasing for those having higher income.

Standard Deduction re-introduced but with a caveat, nothing to cheer about

Most talked about standard deduction has been brought by Honorable Finance Minister, a deduction of Rs. 40,000 p.a. has been given to all having Income under the head salary.

However most of the salaried employees does not have anything to cheer about. Everyone was expecting that tax relief of Medical expenses reimbursed which was Rs. 15,000 p.a. will be increased in this budget. But Honorable Finance Minister took everyone by surprise by withdrawing this tax relief. Further tax relief of Rs. 19,200 p.a. which was available in the form of transport allowance has also been withdrawn.

Thus a minimal increase in relief of Rs. 5,800 p.a. has been given to all those assesse who were currently taking benefit of Medical Reimbursement and Transport allowance benefit. This provides tax benefit of only Rs. 1,160 to those having taxable income of Rs. 10 lakhs thus effectively there is a negligible relief of Rs. 35 for those salaried employees who have income of Rs. 10 lakhs. For those having higher income will have to shell out higher tax in coming assessment years.

In comparison to expectation of a minimum increase in tax relief of medical reimbursement from Rs. 15,000 p.a. to Rs. 25,000 p.a. i.e. of Rs. 10,000 p.a. a benefit of Rs. 5,800 p.a. has only been provided. Further this will also ensure that all those expectations of increase in medical reimbursement will rest in peace and government will not be bothered about the same.

However in case your tax-structure has been such that you either don’t get benefit of medical reimbursement or transport allowance or both then you will have something to cheer about. However such case may exist in exceptional situations. Also those who are differently abled will also be happy to some extent as they will still be able to enjoy transport subsidy deduction thus effectively they have got a relief of Rs. 25,000. Also in the next point covered you will see few more smiling faces because of this amendment.

Are you a senior citizen, you are going to be happy

Honorable Finance Minister will be getting a lot of blessings from Senior citizens as the budget had a lot for senior citizens.

  • First of all I will talk about a point covered above i.e. Standard Deduction. If a Senior Citizen is getting pension from his employer then this is something to cheer about, as currently they were unable to get benefit of Medical reimbursement and transport allowance. Thus this amendment has brought a complete relief of Rs. 40,000 for such assessee.
  • Further a new section 80TTB has been introduced for Senior citizens replacing current section 80TTA which has resulted in increase in exemption from Rs. 10,000 to Rs. 50,000. Further in this section Interest from all deposits in a bank or post office has been covered. Thus even if a senior citizen is getting Interest from FD than also he/she will be eligible for deduction u/s 80TTB.
  • Raising the limit of deduction for health insurance premium and/ or medical expenditure from Rs. 30,000/- to Rs. 50,000/-, under section 80D. All senior citizens will now be able to claim benefit of deduction up to Rs. 50,000/- per annum in respect of any health insurance premium and/or any general medical expenditure incurred.
  • Raising the limit of deduction for medical expenditure in respect of certain critical illness 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.

Do you invest in Equity, the last thing you wanted is now a reality (Frustrated faces all around)

  • There were speculations that tax on LTCG will be brought back but everyone was praying that the same should not happen. But Honorable Finance minister was not of the same opinion.
  • First of all, I will tell you why this tax has been brought back. Tax on LTCG was removed from the year 2005 by bringing Security Transaction Tax (STT) since there existed investment in India through Mauritius and Singapore route where investors by taking such route for investment in India were not paying a single penny in the form of tax in India. The same was because of beneficial clause available in the agreement between governments of India & Mauritius/Singapore (DTAA) which was used to state that Capital Gains earned by residents of these countries will not be taxed in India.
  • Recently both these DTAA’s have been revised thus government wanted to bring tax back on LTCG.
  • All transfer of shares after 1st April, 2018 will attract tax @10% LTCG earned by any assessee. However a beneficial clause has been added for small investors that no tax is payable on LTCG up to Rs. 1 lakhs i.e. in case an assessee earns LTCG during the year of Rs. 1.5 lakhs then he is liable to pay tax @10% only on Rs. 0.5 lakhs.
  • The calculation of LTCG will be without giving benefit of indexation.
  • Grandfathering clause has been brought in for shares acquired prior to 1st Feb, 2018. Cost of acquisition of such shares shall be deemed to be higher of actual cost or the amount lower of fair market value as on 31st Jan, 2018 (highest trading value during the day) or sale consideration of such shares. This is to ensure profits earned upto 31st Jan, 2018 will never be taxed.
  • The benefit of lower tax rate of 10% without indexation shall be available only if Security Transaction Tax (STT) is paid at the time of purchase as well as sale of shares. However government may notify subsequently nature of acquisitions where such condition shall be relaxed.
  • As per the wording of the new Section 112A it also appears that in those cases where shares were purchased prior to 2004 i.e. STT was not paid because the same was not existing at that time will now be taxed like other LTCG i.e. under section 112 @20% after giving benefit of indexation. However author expects that such case will be covered by government in the notification regarding nature of acquisitions where condition of STT being paid at the time of purchase will be relaxed.
  • Deduction under chapter VIA and Tax rebate u/s 87A shall not be available on these LTCG.

Were you planning to utilize benefit of Section 54EC, reconsider your planning once

The period of lock-in for specified bonds for investment of capital gains under section 54EC has now been increased from 3 years to 5 years the same is applicable prospectively and not to those investments which will be done prior to 31st March, 2018. Further also scope of LTCG which can be invested has been reduced only to LTCG on sale of land, building or both earlier it was used to cover all kind of LTCG.

Transferring an Immovable property at a price less than Stamp Duty value, Section 56(2)(X) modified

Currently even if the difference between Stamp duty value and Sale consideration in case of immovable property exceeds Rs. 50,000, the whole difference becomes income of the seller under the head Income from Other Sources.

Recommendations were being made in this regards that at present prices of immovable property are much higher as compared to the time when this provision was brought in hence the limit should be adjusted. Honorable Finance Minister has now considered the same and amended Section 56(2)(X) to provide that difference should be more than the higher of Rs. 50,000 or 5% of consideration only then provisions of 56(2)(X) will get attracted.

{Author is a CA Final Rank holder (AIR 34 – Nov’15) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( ) or his Linkedin account – ( )}

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Qualification: CA in Job / Business
Company: Fortune 500 Company
Location: Mumbai, Maharashtra, IN
Member Since: 06 Oct 2017 | Total Posts: 15
Author is a CA Final Rank holder (AIR 34 – Nov’15) and Diploma Holder in International Taxation (ICAI) currently working in a Fortune 500 company and can be reached at his facebook page – Jatin’s Tax Arena ( ) or his Linkedin acco View Full Profile

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