India 2018 Budget Impact on Tax


Finance Minister Mr. Arun Jaitley tabled the financial plan in Parliament. The senior citizen’s expense will descend by nearly Rs 15,450 because of the tax exemption for up to Rs 50,000 interest earned from bank deposits and Post Office schemes.

Budget Impact on Tax

In any case, senior citizen taxpayers are separated from everyone else in this celebration. Most other citizens, particularly high-income workers and investors in stocks and mutual funds, have been woefully disappointed by the tax proposition in the Budget. The Budget 2018 has increased the cess on tax from 3% to 4% for all citizens, a measure that will push up the general tax of high-income citizens.

A citizen earning about Rs 60 lakh a year will pay Rs 13,354 more in tax, while a high-salaried citizen with a taxable income of Rs 1.2 crore will pay Rs 33,868 more. “Rich citizens who were expecting some relief in surcharge are being disappointed. They will pay more duty one year from now.

Retired Pensioner

There is a big relief in the tax format for the senior citizens in many aspects on the basis of income and lots of deductions have been made in Budget 2018. The deductions for the pensioners in Budget 2018 are as follows

Income of Rs 9 lakh
Sec 80 C                                                                           Rs 1.5 lakh
Medical Insurance                                                        Rs 30,000
Existing Tax                                                                    Rs 55,620
After Budget                                                                  Rs 41,600
Savings on Tax                                                               Rs 14,020

A considerable number of citizens were expecting that the Budget 2018 will raise the basic exclusion limits to Rs 3 lakh for general citizens and to Rs 5 lakh for senior citizens. Some had even hoped for broadening of the tax slabs and a higher tax saving limit under Sec 80C.

Be that as it may, the same number of taxpayers called attention to a week ago; these measures would have consumed a major opening in the exchequer. Rather than big changes in the tax structure, Mr. Jaitley has done some tinkering by reintroducing a standard deduction of Rs 40,000 for salaried citizens.

Low-income earner

For the low-income earner citizen as well there has been some kind of deductions made in Budget 2018. The saving however is not on a major point and the exemption is kind of negligible but we can don’t see any pressure on this segment of citizens.

Gross Income: Rs 6 lakh
Sec 80 C                                                                                       Rs 1.5 lakh
NPS Contribution                                                                      Rs 50,000
Medical Insurance                                                                    Rs 15,000
Existing Tax                                                                                Rs 6,953
After Budget                                                                              Rs 6,718
Saving in Tax                                                                             Rs 234

At the point when Mr. Jaitley announced the standard deduction, salaried citizens the nation over felt relieved. In any case, the good faith soon scattered when the Finance Minister took after that with the removal of the tax-free transport and medical allowances. Many experts say if these allowances are removed, the standard deduction will limitedly affect the tax outgo.

Mid-income with home loan

Taxpayer in this segment had a lot of expectations from the Budget 2018 and the Finance Minister for exemption or relief but all went to disappointment after the announcement. The assurance which mid-income taxpayer were looking for dif not match with the Budget 2018.

Gross Income: Rs. 12 lakh
Sec 80 C                                                                                        Rs 1.5 lakh
NPS Contribution                                                                       Rs 50,000
Medical Insurance                                                                     Rs 20,000     
Home Loan                                                                                  Rs 2 lakh
Existing Tax                                                                                 Rs 70,555
After Budget                                                                               Rs 70,033
Saving in Tax                                                                               Rs 521

The standard deduction of Rs 40,000 for salaried people is an advantage since medicinal reimbursement and transport allowance were at any rate leading Rs 34,200 as tax-free salary

The Rs 40,000 standard deduction will decrease the tax of a salaried individual earning about Rs 15 lakh over Rs 12,000, however in the event that he already gets Rs 19,200 transport allowance and Rs 15,000 medical reimbursement, his tax savings will be just Rs 521 (or not as much as Rs 50 a month).

High income earner

The taxpayers at this segment are highly frustrated as there is no additional benefits’ fitting for them in the Budget. Also the standard deduction is negligible while additional 1% cess adds more tax in the overall outgo.

Gross Income: Rs 60 lakh
Sec 80 C                                                                                        Rs 1.5 lakh
NPS Contribution                                                                       Rs 3.5 lakh
Medical Insurance                                                                     Rs 25,000
Home Loan                                                                                  Rs 2 lakh
Existing Loan                                                                               Rs 15.81 lakh
After Budget                                                                               Rs 15.93 lakh
Additional Tax                                                                            Rs 13,354

Very High-Income Earner

Again in this segment of taxpayer, went to sour for them. This segment got no relief from the surcharge on the tax. Instead 1% additional cess in tax liability has been put making this as one of the problematic hit for the taxpayer.

Gross Income: Rs 1.2 crore
Sec 80 C                                                                                        Rs 1.5 lakh
NPS Contribution                                                                       Rs 5.5 lakh
Medical Insurance                                                                     Rs 55,000
Home Loan                                                                                  Rs 2 lakh
Existing Tax                                                                                 Rs 37.02 lakh
After Budget                                                                               Rs 37.36 lakh
Additional tax                                                                            Rs 33,868

Another real expectation was an adjustment in the tax treatment of the NPS corpus. At the present time, 40% of the NPS maturity corpus can be pulled back tax free, 40% must be placed in an annuity plan to procure a month to month pension and 20% is taxable. This 20% can escape tax if put in an annuity. Yet, it in the long run gets taxed on the grounds that the pension is completely taxable. Pension from the annuity are a blend of the principle and the gain, so the investors adequately pays tax on the gains as well as on the invested capital.

Investors, pension funds and even the pension regulators were seeking for a change in the tax treatment of NPS to make it more alluring for investors. The Pension Fund Regulatory and Development Authority (PFRDA) had additionally written to the Finance Ministry that NPS Tier II savings ought to get a same tax benefit as mutual funds.

In any case, the Budget does not touch these issues by any means. “No adjustment in the tax treatment implies the plan to enable Provident Fund endorsers to switch to NPS will likewise need to wait. No one will need to move from the 100% tax exempt Provident Fund to a scheme that is just 40% tax free,” says a senior PFRDA official.

Techtonic changes in LTCG

Then again, the Budget has released havoc in the stock markets by reintroducing the tax on long term capital gains from stock and equity funds. The Sensex failed by almost 840 points on Friday due far reaching selling weight. Analyst say this will continue as investors try to book profit before the LTCG tax becomes effective in the new financial year beginning 1 April.

Fortunately the tax has an exceptionally liberal threshold and will apply to long term gain beyond Rs 1 lakh. Small investors with a portfolio of `10-15 lakh won’t need to stress. Indeed, even huge investors can stay away from the tax by watching out for the calendar.

All things being equal, the big dread is that the sharp decrease in stock prices could make new investors nervous. Small investors have taken to mutual funds big lately, including more than two crore new folios in the previous two years (70 lakh in 2016 and 1.4 crore in 2017). About Rs 1, 50,000 crore has flown into the equity markets through mutual funds in the previous one year. Investors are pouring in about Rs 6,200 crore consistently into equity funds by means of SIPs. This liquidity has helped the business markets climb new peaks as of late, however a sustained decrease in stock market could capture the inflows.

The other risk is that investors will be tricked by distributors of various products, for example, Ulips and traditional insurance policies. Being insurance products, the income from these plans are not taxable under Section 10(10d). Ulips have improved after the insurance regulator topped charges in 2010; yet traditional insurance plans keep on having high charges. Their profits are scarcely 4-5%, however in the event that stock markets are down and LTCG are taxes, insurance agents will have the capacity to palm off these plans to investors.

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