Budget proposals take effect at various dates. Some apply immediately, some apply from the next financial year and some apply in future years. In this article, we take you through the major changes that apply from 1st April 2018.
- Health and Education Cess
Previously there was an Education Cess of 2% and a Secondary and Higher Secondary Education Cess of 1% (adding up to 3%) on the Income Tax you paid. This has been replaced by a 4% Health and Education Cess. A cess is imposed on the tax you pay. For example, if you pay a tax of Rs 30 on an income of Rs 100, then you pay an additional Rs 1.2 as well (4% of Rs 30).
- Long-Term Capital Gains Tax (LTCG) on equity
A tax of 10% will apply on gains in stocks and equity mutual funds held for more than one year. However, gains made until 31st January 2018 will be exempted. In addition, gains up to Rs 1 lakh per annum will be exempted.
Dividend Distribution Tax on equity funds
A dividend distribution tax of 10% on dividends distributed by equity mutual funds will go into effect.
Employees will get a standard deduction of Rs 40,000 in lieu of transport and medical reimbursements. These were previously set at Rs 19,200 and Rs 15,000 per annum respectively – adding up to Rs 34,200. A standard deduction means that Rs 40,000 per annum will be reduced from the taxable income of employees
Health Deductions for Senior Citizens
Senior citizens (those above 60) will see their medical insurance premium deduction increased to Rs 50,000 per annum (from Rs 30,000) under Section 80D.
They will also get a deduction for medical expenditure up to Rs 1 lakh per annum (raised from Rs 60,000). Very senior citizens (those above 80) will also benefit from the hike with their medical expenditure deduction going up from Rs 80,000 to 1 lakh.
Interest exemption for Senior Citizens
Senior citizens will be allowed a tax exemption on bank or postal fixed deposit interest up to Rs 50,000.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
The PMVVY which is an 8% fixed deposit with LIC (Life Insurance Corporation) for 10 years, available to senior citizens has been extended to March 2020. You can read more about it here.
40% of the accumulated NPS corpus was tax-free on maturity (at the age of 60 years) for employed persons. This benefit has also been extended to self-employed people. You can read more about the NPS here.
If your actual sale price differs by up to 5% from the circle rate, this difference will not be considered ‘presumed income’ and subject to tax.
Lower Tax for Small Companies
Companies with turnover up to Rs 250 crore will see their corporate tax reduced from 30% to 25%.
Note that some budget changes will apply from 1st April 2019 rather than 1st April 2018. One prominent example of this is the change made to capital gains bonds. Budget 2018 specified that only gains made on land and buildings (and not, for example, gold or debt mutual funds) can get the benefit of Section 54 EC capital gains bonds (issued by NHAI and REC). It also extended the tenure of these bonds from three to five years. However, these changes will only go into effect from FY 2019-20 and not FY 2018-19.