Budget 2018 – Key Take Away

While there were a few things in the Union Budget that an average tax paying citizen can take solace in, but one can certainly say that the expectations have not been fully fulfilled.

Income Tax slab is unchanged

Over period of three years Aam Admi was expecting income Tax slab to be more liberal. But expectation fell flat as this year also Finance minister had unchanged the Income Tax Slab

This means that the same income tax slab would apply to salaried work-force as last year.

Income Slab Tax Rate
Income up to Rs 2,50,000 No Tax
Income from Rs 2,50,000 – Rs 5,00,000 5%
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%

2    Income Tax Cess hiked to 4%

One major surprise for middle class in the Budget 2018 was the proposal to hike the cess on income tax from 3% to 4% i.e. by 100 basis points. This move is expected to have a direct impact on the all taxpayers, irrespective of the slab / category they fall under

3    Reintroduction of Standard Deductions

     One saving grace with which FM tried to console the middle class salaried Aam Aadmi was with the reintroduction of standard deduction from salary income. In the Union Budget 2018,Finance Minister has proposed that a standard deduction of Rs 40,000 will be allowed for salaried professionals. What this essentially means that a taxpayer would be able to seek a flat standard deduction of Rs 40,000 from the salary before the calculation of taxable income.

  • For instance, if your annual income is Rs 5,00,000, then you will not have to pay any tax until Rs 2,50,000 + Rs 40,000 of standard deduction. This brings the taxable income down to Rs. 2,10,000.

4   Transport/ Medical Allowance is not exempted

While on one hand FM has given the middle class a relief of Rs 40,000 from salary income in the form of standard deduction; on the other he has taken away the exemption for transport and medical allowance. Until last year, the union budget allowed exemption of Rs 19,200 under the banner of annual transport allowance and Rs 15,000 as medical reimbursement. Which means that earlier as well, under transport and medical allowance, a total of Rs 34,200 could be claimed under exemption from income; this is not the case anymore.

On the whole, income exempted from tax after setting off the gain and loss (of standard deduction vs the transport and medical allowance exemption) is Rs 5,800 only. However, the actual impact on the salaried employee would depend upon the tax-slab they fall under.

5   Reintroduction of Long Term Capital Gain

Another major budget 2018 proposal that might impact the investment plans of the salaried class is the Dividend Distribution Tax (DDT). Finance Minister has proposed introduction of a Dividend Distribution Tax on equity-oriented mutual funds. The proposed tax rate as of now stands at 10%. The move is expected to bring parity between growth oriented mutual funds and dividend distributing mutual fund schemes. However, in general DDT is likely to decrease the investor’s in-hand return through mutual fund investments.

6   Take home salary of New employee to grow

Good new to employees will join any organisation as government will contribute 12% of the wages of the new employees in the EPF for all the sectors for next three years.   Finance minister proposed to make amendments in the Employees Provident Fund and Miscellaneous Provisions Act, 1952 to reduce women employees’ contribution to 8% for first three years of their employment against existing rate of 12% or 10% with no change in employers’ contribution.

7    Mediclaim Insurance exemption limit hiked for Senior Citizen

To give more relaxation to senior citizen, the limit of deduction allowed under section 80D for senior citizens has been hiked from existing Rs 30,000 to Rs 40,000. Section 80D deals with exemption allowed on payment of medical insurance premium for senior citizens.

     Interest income from Bank & Post Office is exempted for Senior Citizen

Hike in the exemption on the interest income earned through Bank Fixed Deposits and Post Office deposits. Earlier, exemption of Rs 10,000 was allowed under this but Union Budget 2018 has proposed to hike the exemption amount to Rs 50,000. The exemption can be availed for all FDs and RDs.