INCOME TAX Impact on Salaried Class - Budget 2018

In a way the much hyped exemption from payment of income tax limit have not been given share. All the estimations and calculations in this regard have disappeared. Now there is some rearrangement of personal tax issues and some ofthe tax issues which are effected are mentioned below. Please note that these will be applicable for the financial year starting from 1st of april 2018.

Some of the impact of this budget in so far as it relates to personal finance is summarized below.

1. No change in income tax slabs for individuals

There is no change in income tax slabs for individuals. Te income tax slabs unchanged this Budget.

2. There comes Standard deduction reintroduced

This Budget has proposed to provide a standard deduction of Rs 40,000 from salary income to employees. Standard deduction is essentially a flat amount subtracted from the salary income before calculation of taxable income. The standard deduction was a part of the Income-tax Act until 2005-06.

3. Medical reimbursement and transport allowance not allowed

The existing annual transport allowance of Rs 19,200 and Rs 15,000 medical reimbursement will be taxable. Now income exempted from tax after setting off the gain and loss is Rs 5,800 only. The tax saved for each employee on this income would depend on the tax slab that income falls into.

4. Cess on income tax hiked to 4%

This Budget 2018 has proposed to hike the cess on income tax from 3% to 4% thereby increasing the tax payable by all categories of tax payers. Now the tax liability for highest tax bracket (assuming Rs 15 lakh income) goes up by Rs 2,625. In fact for middle income tax payers (between Rs 5 lakh and Rs 10 lakh) the tax liability increases by Rs 1,125 and for lowest tax brackets (Rs 2.5 lakhs to Rs 5 lakhs) by Rs 125.

5. EPF contribution of new women workers capped at 8%

Women joining the workforce for the first time will have to contribute only 8% instead of 12% or 10% as the case may be, for the first three years. The proposed move will enhance their take-home pay. Further, for new employees coming under the ambit of EPFO would be provided 12 percent contribution from the government.

6. DDT on equity MF, dividend have been brpought into ambit

It has been proposed to introduce a dividend distribution tax on equity-oriented mutual funds at the rate of 10% percent, to provide a level field across growth oriented and dividend distributing schemes. This reduce the investor's in-hand return.

7. LTCG exceeding Rs 1 lakh to be taxed at 10%

The long-term capital gains (LTCG) tax on gains arising from the transfer of listed equity shares exceeding Rs 1 Lakh at 10 percent introduced without allowing any indexation benefit but all gains up to January 31, 2018 will be exempt. 

8. Section 80D limit proposed to be hiked to Rs 50,000 for senior citizens

The limit of deduction under section 80 D for senior citizens has been proposed to be hiked Rs 30,000 to Rs 50,000. This is good news for senior citizens.

9. Exemption of interest income on deposits to be hiked for senior citizens

It has been proposed to hike the exemption on the interest income on bank and post office deposits for senior citizens from Rs. 10,000 to Rs. 50,000. This is for all FDs and RDs.

10. Pradhanmantri Vaya Vandana Yojana (PMVVY) limit increased to Rs 15 lakh

For senior citizens there is increase to the investment limit the pension scheme, Pradhanmantri Vaya Vandana Yojana (PMVVY), to Rs 15 lakh from the present Rs 7.5 lakh.

In summary the this budget 2018 was one of give and take. In some cases it gives but it was more take than give, especially for the taxpayer. It is welcome that this udget reintroduced standard deduction, gave senior citizens a few reasons to cheer, and increased take home pay of women in the workforce. Some new corrections made in recall of medical and travel allowances of the salaried class but simultaneously introduced long-term capital gains tax on equity, and even hiked the cess you pay on income tax.