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.
- Standard Deduction for Salaried Class: No change in tax slabs for income tax have been made for 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). It should be noted that with the introduction of this standard deduction, the tax payer will no longer be able to avail exemption on account of transport allowance and medical expenditure to the tune of Rs. 19,200 and Rs. 15,000, respectively, allowed earlier.
- Interest Income exemption: The finance minister offered several benefits for the senior citizens this year. The most important of them probably is the one that raises the exemption of interest income on bank deposits from Rs 10000 to Rs 50,000 for senior citizens. For the purpose, a new section 80TTB has been introduced.
- Medical treatment and health insurance: Deduction under health insurance premiums has been raised to Rs 50,000. In case of senior citizens with critical illnesses, the deduction will be Rs 1 lakh. Exemption for medical treatment of senior citizens has also been raised to Rs 1 lakh. Earlier the limit was Rs. 60,000 and Rs. 80,000 for senior citizens and very senior citizens, respectively.
- Post Office interest: 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 to Rs. 1,00,000.
- Education and health cess: The education and health cess has been raised from the current rate of 3% to the new rate of 4%. This is the only additional levy on the small tax payers this time.
- Corporate tax rate: A 25% corporate tax rate has been extended to companies with revenue up to Rs 250 crore (instead of 30% earlier).
- Farm Cooperatives: 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): 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: 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%)
Like this story? Or have something to share? Write to us: firstname.lastname@example.org, or connect with us on Facebook and Twitter.
NEW: Click here to get positive news on WhatsApp!
Let us know how you felt