Another financial year has begun. Here’s what you can expect as far as Income Tax is concerned for the financial year 2018-19.
Budget 2018 was a bearer of mixed tidings for the salaried folks and equity investors across the country. Although there were no changes made to last year’s tax slabs, there were quite a few alterations announced as far as Income Tax is concerned.
Here are 5 key income-tax changes that have been implemented since April 1st, 2018:
Introduction Of Long Term Capital Gains (LTCG) Tax
Capital gains on equities exceeding Rs. 10 lakhs will attract a 10% LTCG tax in the FY 2018-19. This 10% tax is applicable on the sale of equities after one year of their purchase.
However, as a relief for investors, all gains that were made before January 31st, 2018 are grandfathered (i.e. exempt from the new rule). And these gains will not be considered while calculating the total gains for FY 2018-19.
Additional Reading: Budget 2018 – Impact On Mutual Fund Investors
The Return Of Standard Deduction
Sadly, exemptions on transport allowance and medical expenses, which were Rs. 19,200 and Rs. 15,000 respectively, have been scrapped. Instead of these, the Budget 2018 re-introduced a standard deduction of Rs. 40,000. Standard deduction was allowed for salaried folks till FY 2005-06, post which it was scrapped.
This is a beneficial change for salaried people who fall within the lower income bracket. However, those in the higher brackets will end up paying more income tax than they did in FY 2017-18.
Additional Reading: This Is How Budget 2018 Announcements May Help You Save Tax
Hike In Cess Contribution
The 3% health and education cess contribution rate has been hiked to 4%, thanks to our finance minister Arun Jaitley. What’s the rather unpleasant result of this increase? Total tax payable will increase for all tax brackets. If you are a salaried individual and below 60 years of age, here’s how much your tax liability will increase with the 4% increase in cess:
| Tax Bracket | Net Taxable Income | Tax Liability | Tax Increase Due To Cess |
| Up to Rs. 2.5 lakhs | Rs. 2.5 lakhs | Nil | Nil |
| Rs. 2.5 lakhs to Rs. 5 lakhs | Rs. 5 lakhs | Rs. 13,000 | Rs. 125 |
| Rs. 5 lakhs to Rs. Rs. 10 lakhs | Rs. 10 lakhs | Rs. 1,17,000 | Rs. 1,125 |
| Rs. 10 lakhs and above | Rs. 15 lakhs | Rs. 2,73,000 | Rs. 2,625 |
(Table Source: Economic Times)
Taxation Of Dividends
Apart from LTCG, another big negative for equity investors is the 10% Dividend Distribution Tax (DDT). This will be levied on dividends paid by equity Mutual Funds. These dividends were tax-free until now.
Additional Reading: Union Budget 2018: How Your Money Will Be Impacted
Tax Relief For Senior Citizens
While the budget wasn’t very favourable to the salaried and investor community, it brought great relief for senior taxpayers. Three of the key benefits that have been implemented are as follows:
- Under Section 80D, the tax exemption for Health Insurance premium payments and medical expenses has been raised to Rs. 50,000 from Rs. 30,000.
- Interest income exemption on bank and post office deposits has been increased to Rs. 50,000 from Rs. 10,000.
- The exemption limit on medical treatment expenses for senior citizens and very senior citizens has been hiked to Rs. 1 lakh. It was earlier Rs. 60,000 and Rs. 80,000 respectively.
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