Budget 2018: What’s in it for Personal Tax payers?

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Income tax return filing and Union Budget 2018

The laying down of the Union Budget 2018 19 is India’s 86th such exercise overall in the last 71 years since 1947 and Arun Jaitley’s fourth successive one as Finance Minister. The Economic Survey, a type of self-assessment of the executive, was presented just 3 days ago, on the 29th of January.

The Budget speech comprises of 2 parts. In Part A, the Finance Minister summarises and responds to questions on the Economic Survey and in Part B, he gives a statement of taxation proposals to be discussed in Parliament. The Union Budget 2018 India documents include a summary of various receipts and expenditures and comments on their nature. It includes the Annual Financial Statement and the Finance Bill which is laid before the Lok Sabha immediately after the speech.

Till 2014, the General Budget and the Railway Budget were presented separately but were since merged into one in line with the diminishing importance of the Railways in the Budget affecting the national economy. The Budget allocates the Demand for Grants according to each Ministry so that they can justify the estimated expenses for each category.

The Finance Bill would require another week to be passed in the lower house and make such amendments as is necessary.

This post intends to recap the major propositions as delivered in the speech so far.

Income Tax Payers and the Union Budget 2018

  1. The big headline benefit for salaried individuals is the re-introduction of standard deduction albeit at a sum of Rupees 40,000 for individuals and HUFs. The catch is that this will substitute income tax deductions on account of Conveyance allowance and Medical Reimbursement. Earlier, the former provision accommodated tax exemption up to Rupees 19,200 a year and the latter, Rupees 15,000 a year.
    That made for a total deduction under these 2 heads at Rupees 34,200 a year provided all receipts for these official expenses were available for tax scrutiny.
    So, in effect, you get a net benefit of Rupees 5,800 to be subtracted from taxable income. But you won’t have to show proof of medical or travel cost as the standard deduction applies to all salaried individuals.
  2. There are no amendments suggested in the Union Budget 2018 income tax rates for the Assessment Year 2018-19. This may come as a disappointment to claims of this budget being populist. However, the needs of Fiscal Deficit management, where the numbers currently stand at 3.5% of GDP and target for the financial year revised to 3.3% – short of announced goals, may have taken precedence over playing to the gallery.

LTCG tax re-introduced

  1. Also, in focus is the re-introduction of Long Term Capital Gains tax on equity oriented assets (shares, mutual funds) for those earning more than Rupees 1 lakh through this mode alone as a source of income. The current LTCG holding period of 12 months to be classified as long term capital gain remains the same. The rate of tax on profit after sale or transfer here is proposed to be 10%. There were no tax implications on such assets in AY 2017-18.
    The lone silver lining here is that LTCG assets sold before January 31, 2019, will be exempt from tax. This is also known as grandfathering of the asset.
  2. On the plus side, interest income of senior citizens only, will not be taxed if annual earning is less than Rupees 50,000.
    Medical insurance premiums for Senior citizens can go up to Rupees 50,000 without incidence of tax.
    In case of a designated critical illness, the deduction can go up to Rupees 100,000 in a year.
  3. A clause in the budget speech proposes increasing emoluments of the President by over 233%, the Vice President by 220% and the Governor by 218%. Members of Parliament will also give themselves if the Bill is passed, a hike to be announced on April 1, 2018. Then, there is a provision for permanent revision of income every 5 years with cost inflation indexing.

 

More updates to follow. Watch this space for budget analysis and decoding. You can also visit our tax platform here.

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