Long-Term Capital Gains Tax
The Long-Term Capital Gains (LTCG) tax has been increased from zero to 10% for equity investors with gains of over Rs 1 lakh in a year. The LTCG tax applies to investors holding stocks and funds for over a period of one year. For holding periods of less than one year, the existing 15% short-term capital gains tax will continue.
However, gains accrued before 31st Jan 2018 have been grandfathered. This means that the new tax will not apply to those gains. For example, if your funds have gone up from Rs 100 to Rs 120 in value on 31st Jan, you will not be taxed on this gain. However, if they go up to 150 after 31st Jan, and you sell them, you will pay 10% on Rs 30 (Rs 150-120) which is Rs 3.
Distribution Tax on Equity Funds
A 10% tax will be levied on distributions by equity mutual funds. This will be paid by the funds as a dividend distribution tax.
The government has increased the Secondary and Higher Secondary Education Cess from 3% to 4%. This cess is applied on your tax bill and is a ‘tax on tax’. Thus the highest rate of marginal tax goes up from 30.3% to 30.4%.
For example, if you are paying Rs 30 in tax on your income of Rs 100, you currently pay a cess of 3% on Rs 30 which is Rs 0.9. This will now go up to Rs 1.2.
Rs 40,000 deduction for salaried taxpayers
Salaried taxpayers will get a standard deduction of Rs 40,000 in lieu of medical and transport claims which were earlier allowed for them. The existing medical allowance is Rs 15,000 per annum and transport allowance is Rs 19,200.
- Interest income of senior citizens will be exempt up to Rs 50,000 rather than the 10,000 given earlier.
- The medical insurance premium and the limit for medical expenses currently set at 60,000 for senior citizens and 80,000 for very senior citizens will be increased to 100,000 for both categories
- The Pradhan Mantri Vaya Vandana Yojana which is an 8% fixed deposit with LIC will be extended to 2020. The limit for investing in the PMVVY has been hiked from 7.5 lakh to 15 lakh per person.
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.
Medium and Small Businesses
The corporate tax on businesses with a turnover of up to Rs 250 crore has been reduced to 25% from 30%. The turnover threshold was earlier set at 50 crores.
- The EPF contribution for women has been reduced from 12% of salary to 8% for the first three years of their employment. The employer contribution component will continue at 12%.
- The Government will contribute 12% of the salary of new employees covered by the EPF for the next three years, for all sectors.