1. Your personal Income Tax Slabs: Your personal tax structure remains unchanged and the basic exemption limit is not enhanced, as expected. So, you will continue to pay tax on the existing tax slabs.
2. Increase in Education Cess: Budget 2018 proposes to increase the current cess on income tax from 3 per cent to 4 per cent, which will increase your tax payable across all the categories of taxpayers. For example, if your income is Rs 15 lakh, then your tax will go up by Rs 2,625 and for a person earning between Rs 5 lakh to Rs 10 lakh, his or her tax liability will increase by Rs 1,125.
3. Standard Deduction: The long overdue demand of bringing back the standard deduction has been fulfilled. The standard deduction aims to reduce the tax liability and unnecessary paperwork because it does not require you to submit any proof towards your expense, or an investment to the extent of the allowable limit. The Union Budget 2018 has proposed to offer a standard deduction of Rs 40,000 from your salary, but a very important point to note here is that it also proposes to take away your existing transport allowance of Rs 15,000 and medical reimbursement of Rs 15,000. So, after setting off both the effects, ie reducing these two allowances from Rs 40,000 standard deduction, the tax will be saved only on Rs 5,800 of income. The same also depends on your income tax slabs, and it effectively saves only Rs 290 for those whose slab is 5 per cent at present and Rs 1160 for a 20 per cent tax bracket person. Anyone earning more than Rs 10 lakhs ie 30 per cent tax slab taxpayer, will be saving Rs 1,740.
However, you will not be able to enjoy any major tax savings due to this, because there is an increased cess which will also reduce the overall benefit.
4. Long-term capital gain tax: At present, long-term capital gains (LTCG) on the sale of equity shares and equity-oriented mutual funds is completely tax exempt, provided you have sold the stocks or MFs after holding it for more than a year. Now, the budget has introduced the Long-term capital gain tax which will be taxed at 10 per cent, but only for the gains which exceed Rs 1,00,000. An important point to note here is that the benefit of indexation will not be allowed while calculating the tax liability. There is one relaxation given on account of all your gains as on January 31, 2018, which are set to become grandfathered. Now, what is this grandfather rule? If we refer to Wikipedia, a grandfather clause is a provision in which an old rule continues to apply to some existing situations, while a new rule will apply to all future cases. Those exempt from the new rule are said to have grandfather rights or acquired rights, or to have been grandfathered. So, let’s understand how it is going to apply
in this new rule, for eg, if you would have bought some equity shares 6 months before January 31, 2018, for Rs 100 and the highest price as on January 31 was Rs 120, then you do not need to pay any tax on selling these stocks after holding it for a year. But any gains in excess of Rs 20 (ie 120-100) will be taxable at the rate of 10 per cent if you sold the shares after July 31, 2018, ie after holding it for a minimum of one year.
5. Reliefs for senior citizens: The budget has some good announcements for senior citizens. Now, the interest income exemption on their FDs with banks and post offices will be increased from the present limit of Rs 10,000 to Rs 50,000, which means they don’t have to pay any tax on an interest income up to Rs. 50,000. At present, the interest earned on a savings account is allowed as a deduction for a maximum yearly limit of Rs 10,000 under section 80TTA, the same will increase for a senior citizen as mentioned above.
6. NO TDS: The budget has proposed not to deduct tax ie TDS under section 194A for a senior citizen towards their interest income from FDs and recurring deposit schemes. It will save them from filing their tax returns just for claiming the excess TDS.
7. Increase in Medical Premium limit u/s 80D & 80DD: Senior citizens will also get an additional benefit of deduction towards their health insurance premium, from an existing limit of Rs 30,000 to Rs 50,000, under section 80D. Similarly, there is an increase in the deduction limit for any medical expenditure towards a critical illness to Rs. 1 lakh for all the senior citizens, u/s 80DDB.
8. Dividend Distribution Tax @10% by equity mutual funds: A tax on distributed income by an equity oriented mutual fund will be taxed at 10 per cent. At present, dividend distribution is not there on equity-oriented mutual fund schemes. This move will hit those investors, say like a retired person, who used dividends from equity schemes for generating their monthly or periodic income.