Budget of 2018 was welcomed with mixed feelings by the general public of India- while certain new aspects drew flak, some reforms were deemed a boon and the remaining aspects were considered neutral. As we all wait to see how the new budget would affect us and our finances at an individual level, let’s look at the key highlights of Finance Minister Arun Jaitley’s budget speech delivered on the 1st of February this year:
The income tax slab for taxpayers is at a neutral position as no reforms were announced this time.
The cess payable has been increased from the previous 3% to 4%. For individuals in the highest tax bracket, this cess has increased by Rs 2625, for individuals in the middle income group, the cess hike is of Rs 1,125 and for the lowest income bracket, the hike is of Rs 125.
Standard deduction, (that is basically a flat value to be deducted from the salary before calculation of the taxable income) which was done away with in the Budget of 2005-2006 will be reintroduced. So, taxpayers can expect a deduction of Rs 40,000 against their incomes, which reduces their income tax liability.
In contrast to this, transport allowances (of Rs 19,200) and medical reimbursements (of Rs 15,000) have been done away with.
After considering the gains associated with the standard deduction and the loss of transport and medical allowances, we are looking at a net exemption of Rs 5800.
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New women employees can look forward to a higher take home salary as their contribution towards Employee Provident Fund (EPF) has been reduced from 12% to 8% for the initial three years. In addition to this, the government has promised to pay 12% from its side for new employees coming under the EPFO scheme.
Senior citizens will now enjoy benefits under Section 80D at a higher limit of Rs 50,000.
Senior citizens are also exempted from paying tax on their interest income from Fixed Deposits and Recurring Deposits when it is under Rs 50,000 per annum. The extant limit on this exemption is Rs 10,000.
Gains obtained by transferring listed equity shares that exceed Rs 1 lakh are to be taxed at 10% under the new Long Term Capital Gains (LTCG) tax, without any indexation benefits.
A Dividend Distribution Tax (DDT) of 10% is to be levied on equity oriented mutual funds. This is aimed towards making things more uniform for dividend distribution and growth oriented schemes.
For senior citizen FD investors whose retirement corpus consists primarily of FDs, they can look forward to better returns in this financial year, as compared to mutual fund investors.
For the normal FD investors, there are no new tax hikes or other liabilities to endanger their interest income- for them, the new budget is tax neutral. They will continue to reap benefits of the range of 4% per annum to 7.86% per annum, depending on which bank or NBFC they choose for their FD investment.
As far as equities are concerned, they will continue to be one of the most effective investments against inflation despite the introduction of LTCG and DDT.
Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment of Fixed Deposit (FD) marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.