Starting new financial year, change in tax rules will not only affect our monthly income but also impact our day to day life. As tax-payers, we must know of these changes and how they are going to affect daily lives. So here are the reforms, that will change from April 1, 2018.
I. Rs. 40,000/- standard deduction and Transport/ Medical allowance will become taxable –Earlier, salaried employees were allowed a deduction of Rs.19200/- under transport allowance and Rs.15000/- as medical reimbursements. They have now been made taxable. Hence no rebates for these allowances even on submission of bills. However, from now salaried employees will be allowed a flat deduction of Rs. 40,000/- from their taxable income for expenses incurred in relation to their employment. And the best is that you don’t need to keep any bills to claim this deduction!
II. Higher Cess – Education Cess has been renamed to be called as “Health and education Cess”. And now instead of 3%, it will be levied at 4%. Bad news, as this will increase the tax liabilities of the tax payers (irrespective of their tax brackets).
III. Introduction of long-term capital gains tax on equity investments – This has been the most talked about change as earlier any capital gain arising on the sale of long term equity investments was completely “tax free”. From now, it will be taxed at 10%. Yes, it will lower the return from equity investments since the investor will have to pay tax on it when it sells the investments. But nowhere will it dilute its importance as for long term, equity is still the best asset class (basics of investing). However, you’ll not have to pay any tax on gains arising upto Rs. 1 lac.
IV. Tax on dividend income from equity mutual funds – Tax at the rate of 10% will be levied on dividend distributed by equity-oriented mutual funds also. This reform is in line with 10% capital gain tax on equity. Its recommended to switch to growth option if you’ve got the dividend option. For those who look to regular income should opt for Systematic Withdrawal Plan instead of the dividend option.
V. Income tax benefits on paying multi-year health insurance policy premium – Under the proposed changes in Budget 2018, in case of single premium health insurance policies having cover of more than one year, deduction will be allowed on a proportionate basis for the number of years for which health insurance coverage is provided, subject to the specified limit. This change will benefit those who wish to pay 2-3 years of premium in one go, to get the discount offered by Insurance companies. This is a welcome step taken by the government.
VI. Deduction in respect of interest income to senior citizens – The deduction limit has been proposed to increase from Rs. 10,000/- to Rs. 50,000/- on deposits held with banks, post office and co-operative societies for senior citizens. This reform can be seen as a welcome move in the event of falling interest rate so far.
VII. Increased deductions limit for health insurance and medical expenditure for senior citizens (under Section 80D) – The Budget 2018 has proposed to increase the maximum deduction limit to go up from Rs. 30,000/- to Rs. 50,000/-. For individuals below 60 years of age, the deduction under Section 80D continues to be Rs. 25,000/-. However, if their parents are senior citizens i.e., above 60 years, they can claim an additional deduction of up to Rs. 50,000/-increasing the total deduction to Rs. 75,000/- (Rs. 25,000 + Rs. 50,000), higher than the current limit of Rs.55,000/-. With rising medical inflation, this decision to increase the limit will be highly appreciated and valued.
At the start, it often seems that you’ve had enough time to plan your taxes. Time flies and by the time you realize; you’ve already hit the JFM months. So don’t let time get the better of you, make the most of it and plan your taxes way in advance!
