‘Budget 2018’ the much awaited last full budget of NDA govt. finally declared…don’t think other ways, I mean for this term of NDA Govt. I am writing this article by taking key takeways from Budget 2018 for Personal Taxation.

The Union budget due to coming eight State Assembly elections this year, and the 2019 Lok Sabha polls was expected to be mass contended. However, it was indicated by PM in his interview few days back that budget would not be just focussed on masses, but will have economic prudence too.

Budget 2018 has a focus on the rural economy and farmers, the government proposed a string of measures for the agriculture sector. Jaitley, also announced a much ambitious new National Health Insurance Scheme, set to be the largest government-funded programme in the world, which will cover 10 Cr. poor and marginalised families, translating to 50 Cr. beneficiaries.

Budget 2018 reiterates ‘Carrot & Stick’ story in our mind – but govt. has used stick more than the carrot, especially for the taxpayer. On one hand, reintroduced standard deduction, gave senior citizens a few reasons to cheer, and increased take home pay of women in the workforce. On the other, took away the medical and travel allowances of the salaried class, introduced long-term capital gains tax on equity, and even hiked the cess you pay on income tax.

Here are 11 key highlights of Budget 2018 for Personal Taxation:

1. No change in income tax slabs for individuals

Although many were expecting it, in the Union Budget 2018, there is no proposal for changing the structure of income-tax slabs. This has traditionally been the most effective tool by the govts. to allure middle class. As common tax payers understand it easily and can directly relate to themselves, that govt. has done something good for them. They don’t read the whole budget and its overall impact on an individual. People are interested in direct offerings rather than indirect repercussions or benefits.

Jaitley stated that the government had made many positive changes in the personal income-tax rate applicable to individuals in the last three years. So, govt. left the income tax slabs unchanged.

Just for your information Tax Slabs which are applicable for FY 2018-19 are :

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2. Standard deduction reintroduced

Arun Jaitley proposed a standard deduction of Rs 40,000 in Budget 2018. The standard deduction, which is provided to salary earners, was discontinued in FY 2005-06, by then finance minister, P. Chidambaram.

Standard Deduction is basically an amount deducted from the gross salary income before calculation of taxable income. This will provide a nominal benefit to the salaried tax payers, as now medical reimbursement and transport allowance cease to exist.

3. Cess on income tax hiked to 4%

Budget 2018 has proposed to hike the cess on income tax from 3% to 4% thereby increasing the tax payable by all categories of tax payers.

The existing 3% education cess will be replaced by a 4% health and education cess to be levied on the tax payable. This will enable govt. to collect an estimated additional amount of Rs. 11,000 Cr. Govt. has announced various programs for education and health of BPL and rural families & the additional revenue generated will be used to fund them.

The net impact of this change is shown in the table below-
Tax Category: Individual (resident or non-resident), who is of the age less than 60 years on the last day of the relevant previous year.

Increase in Tax Liability Due To increase in Cess of 1%

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4. Medical reimbursement and transport allowance scrapped

Budget 2018 proposes a standard deduction of Rs 40,000 in lieu of existing annual transport allowance (Rs. 19200 P.A.) and medical reimbursement (Rs. 15000 P.A.).

Income exempted from tax after setting off the gain from standard deduction and loss from lack of medical & transport allowance is Rs 5,800 per annum. The govt. has a net revenue sacrifice of Rs. 8000 Cr approx. due to this change in taxation.

5. EPF contribution of new women workers capped at 8% New women workers take home pay to go up

Finance minister Arun Jaitley said the government will amend the Employees Provident Fund Act to reduce the PF contribution of women employees to 8% from existing 12%.

Women joining the workforce for the first time will have to contribute only 8% instead of 12%, with no change in employer’s contribution for the first 3 years. The proposed move will enhance their take-home pay.

According to the Economic Survey, female labour force participation rate has declined to 24% in 2015-16 from 36% in 2005-06.

6. LTCG exceeding Rs 1 lakh to be taxed at 10%

The government reintroduced Long Term Capital Gains (LTCG) tax in Union Budget 2018-19. The move surprised D-Street as most analysts were factoring in a change in definition of ‘Long Term’ to 2 or 3 years from 1 year.

Long term capital gains exceeding Rs 1 lakh on sale of equity shares/units of Equity oriented Fund are proposed to be taxed at 10% without allowing any indexation benefit. However, all gains up to January 31, 2018 will be exempt. The imposition of this tax will bring the government marginal revenue gain of about Rs 20,000 crore in the first year.

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The real disappointment was the continuation of STT (Securities Transaction Tax) along with LTCG, logically only one should be there. STT was introduced in 2004, when LTCG which was 20% at that time was scrapped. STT was introduced to control tax avoidance by equity investors. Now we will have to bear both…Disappointing.

But, still Equity will be most attractive asset class for investments. It will continue to give highest post tax returns even after re-introduction of LTCG in the long term.

7. Section 80D limit proposed to be hiked to Rs 50,000 for senior citizens

The government has raised the limit of deduction for health insurance premium or medical expenditure from Rs 30,000 to Rs 50,000 under Section 80D.  All senior citizens will now be able to claim the Rs 50,000 per annum in respect of any health insurance premium or any general medical expenditure incurred. Its good news for our elderly, as health insurance premiums for old aged couple are mostly over and above Rs. 30000 yearly .… and its a good news for Insurance Companies too.

8. Raising the limit of deduction to Rs. 1 Lakh for Critical Illness for senior citizen

FM Jaitley, announced 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.

Here is the list of all illness covered under Sec 80DDB

•  Dementia
•  Dystonia Musculorum Deformans
•  Motor Neuron Disease
• Ataxia
•  Chorea
•  Hemiballismus
•  Aphasia
•  Parkinsons Disease
•  Malignant Cancers
•  Full Blown Acquired Immuno-Deficiency Syndrome (AIDS)
•  Chronic Renal failure
•  Hematological disorders
•  Hemophilia
•  Thalassaemia

9. Exemption of interest income upto Rs. 50000 for senior citizens

Exemption of interest income on deposits with banks and post offices to be increased from Rs 10,000 to Rs 50,000 and TDS (Tax Deducted at Source) will not be required to be deducted on such income, under section 194A. This is for all FDs and RDs.

10. FM proposes DDT on equity Mutual Funds

It has been proposed to introduce a dividend distribution tax on equity-oriented mutual funds at the rate of 10% , to provide a level field across growth oriented and dividend distributing schemes. The tax will still be on source, and will be tax free in the hands of the investor.

Companies declaring dividend will directly pay 10% tax on the dividend payable to the govt. on your behalf. You don’t have to pay any tax from your end on dividend income.

11. Budget proposes to hike PMVVY limit to Rs 15 lakh for senior citizens.

In addition to tax concessions, the government has proposed to extend the Pradhan Mantri Vaya Vandana Yojana (PMVVY) up to March 2020. Under this scheme an assured return of 8 per cent is given by Life Insurance Corporation of India (LIC). The existing limit on investment of Rs 7.5 lakh per senior citizen under this scheme is also being enhanced to Rs 15 lakh.

The budget is more or less neutral for salaried tax payers but govt. has definitely tried to allure senior citizens. This year’s budget is centred mainly on farmer’s & more importantly on decreasing fiscal deficit & Debt. Let’s see how this translates into votes in the coming state elections & lok sabha elections in 2019.

But still equity will be the best performing asset class in the long term. Investors need not worry about the long term capital gain, as it is one of the least in India. Also, LTCG was applicable till 2004 & is not a new tax for equity markets. It’s just that we were getting freebies for 14 years and had started thinking that the perk is forever.

Do write us, if you have something to add to this article. We will definitely try to include it for our other readers.