A new financial year may not call for resolutions and lifestyle changes, but your financial life will undergo a quite a few alterations in 2018-19.
Here is a quick look at the new tax rules that you will now have to follow.
- LTCG tax on equity investments
Arguably the biggest change implemented this financial year is the reintroduction of the long term capital gains tax on stock market
investments. A 10% Long Term Capital Gains (LTCG) tax will be imposed on profits exceeding `1 lakh made from the sale of stocks and equity-oriented mutual funds that have been held for over a year. All profits made by investors up to 31 January 2018 have been grandfathered. Indexation benefit will be available on the sale of shares
listed after 31 January. While Ulips are exempt from this tax at present, this can change going forward.
The budget announced a standard deduction of Rs 40,000 for salaried employees, but it also did away with the taxexempt annual transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000. The difference of Rs 5,800 is the reduction in the amount of taxable salary. The tax you save on this amount will depend on the income tax
slab you are in.
The main advantage of the move is that the calculation will now be much less complicated. The deduction will be made directly from your salary, and you won’t need to submit investment proof or bills to avail of the benefit.
- Tax advantages for senior citizens
There’s good news for senior citizens, many of whom rely on interest income to meet their expenses. The exemption limit on income from interest for those over 60 has been hiked five times from Rs 10,000 to Rs 50,000 per year. All deposits held by senior citizens across both banks and co-operative banks, as well as post offices will be eligible for this exemption.
Another important benefit extended to senior citizens is that of the higher limit of deduction for health insurance
premium and medical expenditure. This amount has been raised from Rs 30,000 to Rs 50,000 under Section 80D of the Income Tax Act. The deduction limit for medical expenses for specified critical illnesses under section 80DDB, has been hiked to Rs 1 lakh for all senior citizens from Rs 60,000 (in case of senior citizens) and Rs 80,000 (for super senior citizens).
- NPS exemption for the self employed
So far, only salaried employees were allowed withdraw up to 40% of their total accumulated corpus from the National Pension Scheme (NPS) at maturity or account closure, without any tax implications. But now, self-employed subscribers are also eligible for this benefit. This move will bring nonsalaried subscribers of the NPS on par with salaried employees.
- Longer lock-in for bonds under 54EC
Profits from the sale of real estate which are held for at least two years become tax-free if they are invested in specified bonds under Section 54EC. The Union Budget
has extended the lock-in period of investments in capital gain tax exemption bonds from three years to five years.
This means that earlier you had to stay invested in the 54EC bonds for three years to get the tax break, but from now on your money will be locked in for five years.
- DDT imposed on equity mutual funds
Tax (DDT), which was applicable only to debt funds so far, will now apply to equity mutual funds as well. While dividends will remain tax free in the hands of the investor, the fund house will have to pay 10% tax on income distributed to investors. This might be a good time for those who rely on dividends from equity funds as a form of income to review their investment strategy, since this tax will reduce the inhand return for investors if they choose the dividend option.
Although it is only a marginal increase, the hike in the education cess means all taxpayers will have to pay a little more tax than they used to. The cess on income tax has been increased by 3% to 4%, as a result of which, the effective tax liability of taxpayers in the highest tax bracket will increase to 31.2% from 30%. For the middle income taxpayers, it will go up from 20% at present to 20.8%; and for those in the lowest bracket, liability will increase from 5% to 5.2%.