The most significant change implemented in the financial year 2018-19 is the revival of the long-term capital gains (LTCG) tax on the investments in the stock market. Now, a 10% tax will be imposed on the profits from stock markets which exceed one lakh in the form of Long-Term Capital Gains (LTCG) tax. These profits could be earned by the sale of stocks and equity-oriented mutual funds, which have been held by an investor for more than a year.
What are the Exemptions?
- Profits made by the investors till the end of January 2018
- ULIPs (Unit Linked Insurance Plans)
- For the shares listed after 31st January, the government has granted Indexation Benefit
The budget declared a standard deduction of Rs. 40,000 for the salaried employees, in place of the deductions for medical reimbursements and travel allowance. The difference between the previous and revised deductions is Rs. 5,800. This is the total discount provided by the government in the amount of taxable salary. The tax saved through these deductions depends on the income tax slab that the individual falls under. One of the major advantages of having standard deductions is that it makes the estimation of tax deductions less complicated. Standard deduction is cut directly from your salary, and you won’t be required to submit any investment proof to avail the benefits.
Tax Advantages for Senior Citizens
The recent changes in Income Tax laws are very beneficial for senior citizens, who rely on income from interest for their expenses. The limit of exemption for income from interest for people above 60 years old has been raised five times, i.e., from Rs.10,000 to Rs.50,000 each year.
The types of deposits held by senior citizens that are eligible for this exemption are:
- Deposits held in banks
- Deposits held in co-operatives
- Deposits held in Post Offices
Limit for the tax deduction on health insurance premiums and all forms of medical expenditures have also been raised from Rs.30,000 to Rs.50,000 under Section 80D of the Income Tax Act. Deduction limit for medical expenses for serious illness has also been hiked from Rs.60,000 (Rs.80,000: for citizens above 80 years old) to Rs.1 lakh for senior citizens under Section 80DD of the Income Tax Act. The diseases that are eligible for tax exemption under Section 80DD are:
- Hearing impairment
- Mental retardation
- Mental illness
- Cerebral palsy
- Low vision
- Locomotor disability
NPS Tax Exemption for the Self-Employed
What is NPS?
The National Pension System was started by the Indian Government under the Pension Fund Regulatory and Development Authority (PFRDA) to provide people with affordable social security after retirement. NPS is a flexible, low cost, tax efficient and portable scheme. Both employers and employees contribute to this scheme.
Until now, only salaried employees were eligible to withdraw 40% of the total corpus accumulated over time. The new tax rules suggest that even non-salaried (self-employed) individuals can experience the tax benefits under National Pension System (NPS). This particular tax reform plans on bridging the income gap between salaried and non-salaried employees post-retirement.
Longer Lock-In for Bonds Under Section 54EC
The lock-in period of investments that fall under the capital gain tax has also been increased from three to five years. It implies that earlier an individual had to stay invested for three years for bonds that fall under Section 54EC, but now they’ll be required to stay invested for five years.
Changes in Eligibility of Tax Exemption for Long-Term Capital Gains Bond
Earlier, any individual could claim tax exemption under Section 54EC of the Income Tax Act for long-term capital gains for the sale of any long-term capital asset. With the reform in the income tax rules, the tax exemptions can only be claimed for the capital gains arising solely from the sale of property, such as land, residential or commercial building.
Earlier, DDT (Dividend Distribution Tax) was applicable only to the debt funds; but now, it has been extended to mutual funds as well. The dividends from equity funds will remain tax-free. However, the fund house will be charged a 10% tax on the income that it distributes to all its investors. Since the tax will reduce the in-hand return for the investors if they choose the dividend option, it is essential for investors to review their investment strategy.
Hike in Education Cess on Income Tax
Although the increase is marginal, the rise in education cess would mean that the taxpayers will be taxed more than before. The education cess on income tax has been increased to 4% from 3%. This implies that the effective tax liability for the individuals belonging to the highest tax bracket increased from 30% to 31.2%. For the taxpayers belonging to the middle tax bracket, the tax liability increased to 20.8% from 20% and for taxpayers belonging to the lowest tax bracket the effective tax liability rose from 5% to 5.2%