Budget 2018: Key Highlights and the Income Tax Slab Rates for FY2018-2019

Here are the key highlights of Budget 2018:

Income Tax Slab rates have not been changed (Income Tax slabs for FY2018-2019)

Income Tax Slab rates remain the same as for FY2017-2018.

Introduction of Standard Deduction of Rs 40,000 (Good)

This replaces medical reimbursement and travel/conveyance allowance.

At present, you can get medical benefits reimbursed from employer to the extent of Rs 15,000. Conveyance allowance can be Rs 1,600 per month, effectively Rs 19,200 per annum.

This standard deduction of Rs 40,000 will replace the aforementioned benefits.

Not a big change to be honest. The maximum tax benefit goes up from Rs 34,200 to Rs 40,000 per annum.

But yes, this is likely to save you a lot of paperwork.

Enhancement of Tax Benefit for Health Insurance Premium to Rs 50,000 for senior citizens(Good)

The benefit under Section 80D has been enhanced from Rs 25,000 to Rs 50,000 per financial year.

The tax benefit for senior citizens has been enhanced from Rs 30,000 per annum to Rs 50,000 per annum.

Additionally, many times, we pay health insurance premium for multiple years to avail discounts. However, the tax benefit (till now) was available only in the year of payment. This rule has now been changed.

If you are paying the premium for multiple years, you will get the proportionate benefit for those years. So, if you pay Rs 40,000 for two years, you can get a tax benefit for Rs 20,000 for each of the years.

No tax on interest income for Senior Citizens till Rs 50,000 (Good)

A new section (80TTB) is proposed. Under the section, it is mentioned that interest income up to Rs 50,000 is exempt from tax. This benefit is applicable only to senior citizens.

The interest income can be on savings accounts, fixed deposits or recurring deposits. Such income shall be on deposits with banks, co-operative banks and post office.

Tax-payers, who are not senior citizens, can avail tax benefit of Rs 10,000 for interest income on savings bank account under Section 80TTA. There is no change for taxpayers less than 60 years of age.

It is mentioned that a tax-payer who has taken benefit under Section 80TTB cannot take tax benefit under Section 80TTA.  Therefore, the benefit under Section 80TTB and Section 80TTA are exclusive.

Additionally, in case of senior citizens, the TDS (tax deducted at source) will be deducted only if the interest income exceeds Rs 50,000 (increased from Rs 10,000) in the financial year.

I believe this is a huge relief for senior citizens. At an old age, running around banks to submit forms is the last thing you want to do.

Enhancement of Tax Benefit for Medical Treatment of Critical Illnesses to Rs 1 lac (Good)

For the defined critical illness, you can claim tax benefit to the extent of Rs 1 lac per financial year under Section 80DDB. Please note this applies to only senior citizens.

Earlier, the limit was Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens (>=80 years). Now, the limit for both has been enhanced to Rs 1 lac per annum.

Do note the limit was tax-payers under the age of 60 remains the same at Rs 40,000 per annum.

Additionally, you can take tax deduction for the medical expense if you have not claimed reimbursement for the same expense under any insurance policy.

Increase in Investment Limit for Pradhan Mantri Vaya Vandana Yojana (Good)

Pradhan Mantri Vaya Vandana Yojana has been extended till March 31, 2020. This means you can invest in the scheme till March 2020.

However, the maximum contribution per family has been increased from Rs 7.5 lacs to Rs 15 lacs.

PMVVY guarantees 8% interest income for senior citizens for 10 years.

Introduction of Long Term Capital Gains Tax on Sale of Equity Shares/Equity Mutual Funds (Not so good)

Earlier such gains were exempt. Now, you have to pay tax at 10% on such long term capital gains (LTCG) if such LTCG exceeds Rs 1 lac in the financial year.

Short term capital gains (for holding period < 1 year) shall be taxed at 15% (unchanged).

I have discussed this change and the impact in greater detail in this post.

Dividends from Equity funds to be taxed at 10%. (Not so good)

Earlier, the dividend was exempt from tax. Now, the AMC will deduct dividend distribution tax (DDT) of 10% before handing over the dividend. Earlier, there was no DDT. Do note you will not have to pay any tax. AMC will pay it on your behalf.

You can read about this in greater detail in this post.

A few other important announcements

1. Health and education cess has now been enhanced to 4% from 3% earlier.
2. Benefit under Section 54EC (to save long term capital gains by investing in NHAI and REC bonds) has been now to limited to only capital gains arising from sale of land and building. Earlier, any kind of capital asset was defined. Moreover, the tenure of such bonds has been revised from 3 years to 5 years.
3. The three Government General Insurance companies (National Insurance, United India and Oriental Insurance) will be merged into a single entity and listed.
4. National Health Protection Scheme shall be launched that will provide medical coverage of Rs 5 lacs to poor families.
5. EPF contribution for new employees will be 8.33% for the first 3 years. For certain sectors such as textile, leather and footwear, Govt. contribution to EPF account will be 12%.
6. EPF deduction for women at 8% for first three years of employment.

Please understand these are still budget proposals. These will not come into force till such time the Budget is passed by the Parliaments. I am not a tax expert either. You are advised to consult a Chartered Accountant before taking any decision.