This being the first Budget after the roll-out of GST,, expectations were especially high that the government would announce income tax sops and positive changes in direct taxation for the middle class in this year’s budget.
In fact, in an interview to The Hindu, Chief Economic Adviser Arvind Subramanian made it clear that changing the income tax slabs to reduce the tax burden on the salaried and middle class was one of the government’s key focus areas. Additionally, in November, the government had formed a task-force to draft a new (and simpler) direct tax law to replace the existing Income Tax Act, which has been in force since 1961.
However, it must be noted that the government will also be trying to ensure that the changes don’t reduce its revenue too much, as there is already the possibility of overshooting the fiscal deficit target for 2018-19.
Here is a quick round-up of the announcements in the Budget 2018 that will impact direct taxes – income and corporate.
- No change in tax slabs for income tax on salaried class. However, a standard deduction of Rs 40,000 under transport and medical reimbursement has been allowed to them, keeping in mind that they have been paying more tax than individual business owners. (The facility has been extended to pensioners).
- For senior citizens, the exemption of interest income on bank deposits has been raised to Rs 50,000.
- The Finance Minister proposed to raise the deduction under health insurance premiums to Rs 50,000. In case of senior citizens with critical illnesses, the deduction will be Rs 1 lakh.
- For senior citizens, Fixed Deposits (FD) and post office interest will also be exempt till Rs 50,000. 80D benefit has been enhanced to Rs 50,000 and 80DDB benefit has been enhanced from Rs. 60,000 to Rs. 1,00,000.
- The Finance Minister proposed to extend a 25% corporate tax rate to companies with revenue up to Rs 250 crore.
- 100% tax deduction will be given to farm cooperatives. Furthermore, 100% tax deduction for the first five years will be allowed to companies registered as farmer producer companies with a turnover of Rs 100 Crore and above.
- Long-term capital gains (LTCG) exceeding Rs 1 lakh will be taxed at 10% without indexation benefit with certain caveats. (Indexation benefits helps investors in long-term debt funds to save taxes).
- Equity Oriented Mutual Funds will now face a dividend distribution tax of 10% to bring it at parity with the new LTCG of 10%. (Short-term capital gains remains at 15%)