Yesterday, the Finance Minister Shri Arun Jaitley presented the Union Budget for the Financial Year 2018-19.
The salient aspects of the Finance Bill 2018, in relation to your personal finances and investments, are enumerated below.
1. Now pay tax on the Long Term Capital Gains from equity / equity mutual funds
Until now, gains on equity shares or equity-oriented mutual funds, held for more than one year, were classified as long term capital gains and were exempt from tax.
This regime of earning tax-free income from equity comes to an end.
Such long term capital gains — exceeding Rs.1 lakh — will now be taxed @10%.
In this regards, it is important to be note that the gains accrued till Jan 31, 2018 will NOT be taxed. For example
- You purchased a share or a mutual fund on Aug 1, 2017 for Rs.100
- The highest share price or NAV on Jan 31, 2018 was Rs.120
- You sold the above share or mutual fund after Jul 31, 2018 at Rs.150
So, you will have to pay tax @10% on the notional gain of Rs.30 (= Sale Price of Rs.150 - the Highest Price on Jan 31, 2018 i.e. Rs.120) and not on the actual gain of Rs.50 (= Sale Price of Rs.150 - Purchase Price of Rs.100).
Note...
... Securities Transaction Tax (STT) should have been paid, to be eligible for this concessional rate of 10% tax
... no indexation benefit will be allowed for such gains
2. Dividend Distribution Tax applicable on equity-oriented mutual funds too
Till now, mutual funds had to deduct Dividend Distribution Tax (or DDT) only on the dividends declared for the non-equity oriented mutual funds (e.g. debt funds, gold funds, MIP schemes, etc).
Equity-oriented funds were exempt from DDT.
Henceforth, even the equity-oriented funds will come under the ambit of DDT. Accordingly, Dividend Distribution Tax @10% would be deducted while paying dividend to the unit-holders of equity-oriented mutual funds.
Actually, the effective tax will be higher at 11.65%, on account of surcharge of 12% and new cess of 4% (see Point 7 below).
3. Increase in tax deduction limit on health insurance of senior citizens
Presently, senior citizens are allowed a deduction of up to Rs.30,000 towards payment of health insurance premium; or medical expenditure; or preventive health check-up (sub-limit Rs.5000).
This limit of deduction, u/s 80D, has now been enhanced to Rs.50,000.
4. Tax free interest income up to Rs.50,000 for senior citizens
Presently, u/s 80TTA, interest earned on Savings Account is allowed as deduction up to Rs.10,000.
However, all interest income on Fixed Deposits is currently taxable.
This provision will change for the senior citizens.
Now, under new section 80TTB, they can claim a deduction of up to Rs.50,000 in respect of interest income from Fixed Deposits. However, if they do so, they CANNOT simultaneously claim tax deduction of Rs.10,000 u/s TTA.
In line with this change, the threshold of TDS on interest income for the senior citizens, is being increased from Rs.10,000 to Rs.50,000.
5. Tenure of bonds, for saving long term capital gains tax, extended
Under 54EC, you could save long term capital gains tax, by investing the gains
- in the specified bonds issued by REC / NHAI / other bonds notified by the Govt.
- within a period of 6 months
- subject to a limit of Rs.50 lakhs.
The tenure of these bonds was three years.
Now, this tenure has been extended to FIVE years.
Also, you can save long term capital gains tax by investing in these bonds PROVIDED the long term asset sold is a land or a building. Other capital assets will NO LONGER be able to save tax in this manner.
6. Standard Deduction on salary income re-introduced
Many years ago, the taxpayers were allowed to deduct from their total income a specified amount as Standard Deduction. This was subsequently discontinued.
Now, Standard Deduction — with a limit of Rs.40,000 — makes a comeback (but with a small twist).
The twist is that the present exemptions with regards to Transport Allowance and Reimbursement of Medical Expenses stand withdrawn.
Hence those taxpayers, who enjoyed these exemptions, will not really gain much in monetary terms. It only saves them from the hassles of furnishing medical bills to claim reimbursement.
However, taxpayers who did not enjoy these benefits e.g. retired pensioners, this provision will bring in extra tax savings.
7. Cess on tax increased by 1% (from 3% to 4%)
As of now, we have to pay Education Cess @2% + Secondary and Higher Education Cess @1% on the tax payable i.e. a total cess of 3%.
From FY 2018-19, the above two Cesses will be discontinued — and replaced by a new 'Health and Education Cess' of 4%.
In a nutshell, not a good budget for the equity investors. But a really useful budget for the senior citizens.
The salient aspects of the Finance Bill 2018, in relation to your personal finances and investments, are enumerated below.
1. Now pay tax on the Long Term Capital Gains from equity / equity mutual funds
Until now, gains on equity shares or equity-oriented mutual funds, held for more than one year, were classified as long term capital gains and were exempt from tax.
This regime of earning tax-free income from equity comes to an end.
Such long term capital gains — exceeding Rs.1 lakh — will now be taxed @10%.
In this regards, it is important to be note that the gains accrued till Jan 31, 2018 will NOT be taxed. For example
- You purchased a share or a mutual fund on Aug 1, 2017 for Rs.100
- The highest share price or NAV on Jan 31, 2018 was Rs.120
- You sold the above share or mutual fund after Jul 31, 2018 at Rs.150
So, you will have to pay tax @10% on the notional gain of Rs.30 (= Sale Price of Rs.150 - the Highest Price on Jan 31, 2018 i.e. Rs.120) and not on the actual gain of Rs.50 (= Sale Price of Rs.150 - Purchase Price of Rs.100).
Note...
... Securities Transaction Tax (STT) should have been paid, to be eligible for this concessional rate of 10% tax
... no indexation benefit will be allowed for such gains
2. Dividend Distribution Tax applicable on equity-oriented mutual funds too
Till now, mutual funds had to deduct Dividend Distribution Tax (or DDT) only on the dividends declared for the non-equity oriented mutual funds (e.g. debt funds, gold funds, MIP schemes, etc).
Equity-oriented funds were exempt from DDT.
Henceforth, even the equity-oriented funds will come under the ambit of DDT. Accordingly, Dividend Distribution Tax @10% would be deducted while paying dividend to the unit-holders of equity-oriented mutual funds.
Actually, the effective tax will be higher at 11.65%, on account of surcharge of 12% and new cess of 4% (see Point 7 below).
3. Increase in tax deduction limit on health insurance of senior citizens
Presently, senior citizens are allowed a deduction of up to Rs.30,000 towards payment of health insurance premium; or medical expenditure; or preventive health check-up (sub-limit Rs.5000).
This limit of deduction, u/s 80D, has now been enhanced to Rs.50,000.
4. Tax free interest income up to Rs.50,000 for senior citizens
Presently, u/s 80TTA, interest earned on Savings Account is allowed as deduction up to Rs.10,000.
However, all interest income on Fixed Deposits is currently taxable.
This provision will change for the senior citizens.
Now, under new section 80TTB, they can claim a deduction of up to Rs.50,000 in respect of interest income from Fixed Deposits. However, if they do so, they CANNOT simultaneously claim tax deduction of Rs.10,000 u/s TTA.
In line with this change, the threshold of TDS on interest income for the senior citizens, is being increased from Rs.10,000 to Rs.50,000.
5. Tenure of bonds, for saving long term capital gains tax, extended
Under 54EC, you could save long term capital gains tax, by investing the gains
- in the specified bonds issued by REC / NHAI / other bonds notified by the Govt.
- within a period of 6 months
- subject to a limit of Rs.50 lakhs.
The tenure of these bonds was three years.
Now, this tenure has been extended to FIVE years.
Also, you can save long term capital gains tax by investing in these bonds PROVIDED the long term asset sold is a land or a building. Other capital assets will NO LONGER be able to save tax in this manner.
6. Standard Deduction on salary income re-introduced
Many years ago, the taxpayers were allowed to deduct from their total income a specified amount as Standard Deduction. This was subsequently discontinued.
Now, Standard Deduction — with a limit of Rs.40,000 — makes a comeback (but with a small twist).
The twist is that the present exemptions with regards to Transport Allowance and Reimbursement of Medical Expenses stand withdrawn.
Hence those taxpayers, who enjoyed these exemptions, will not really gain much in monetary terms. It only saves them from the hassles of furnishing medical bills to claim reimbursement.
However, taxpayers who did not enjoy these benefits e.g. retired pensioners, this provision will bring in extra tax savings.
7. Cess on tax increased by 1% (from 3% to 4%)
As of now, we have to pay Education Cess @2% + Secondary and Higher Education Cess @1% on the tax payable i.e. a total cess of 3%.
From FY 2018-19, the above two Cesses will be discontinued — and replaced by a new 'Health and Education Cess' of 4%.
In a nutshell, not a good budget for the equity investors. But a really useful budget for the senior citizens.
