Changes Brought About in Income Tax in the Union Budget of 2018
Finance Minister, Arun Jaitley, in the Union Budget 2018 session yesterday (1 February) proposed five new changes to be incorporated to the existing standards of the Income Tax Department:
- A 1% increase in the cess of corporation and personal income tax was proposed by the Finance Minister in the session yesterday. From an earlier 3%, the cess has now been increased to 4%. This, in turn, will spiral the total income tax paid by a taxpayer, every year.
- Salaried individuals, henceforth, will get a Rs.40,000 deduction on their incomes, thereby replacing the existing exemption permitted on reimbursement of medical costs and transportation allowances. Around 2.5 crore salaried individuals are believed to benefit from this move and the total cost incurred by the Government would amount to Rs.8,000 crore. In the year 2006-07, standard deductions on incomes were abolished, although soon after the concept was brought back into action. Standard deduction, essentially comprises of deduction of a certain amount of money from the salaried individual’s income to cope with expenses that the person would incur during his employment in the organisation.
- The Union Budget 2018 introduced a new 10% tax charged on investments of long-term capital gains in stocks, and equity mutual funds. Contradicting hugely from its existing standard of tax exemption, the new tax law states that all profits exceeding the amount of Rs.1 lakh (from mutual funds and stock markets) will henceforth be taxed a 10% rate. However, long-term capital gains that have been invested in stocks and mutual funds up until January 31, 2018 will be exempted from any tax deduction.
- The Finance Minister in the session of Union Budget 2018 held yesterday also introduced a 10% tax rate on distributed income earned from equity-based mutual funds.
- Concerning the senior citizens of the country, the Indian government has established a lot of changes that will help minimise their financial burden:
- The exemption of interest income on prepayments made in banks and post offices has been increased to Rs.50,000 from an earlier Rs.10,000.
- Under Section 80D, the deduction limit for premiums paid on health insurances or other medical expenditures has been increased to Rs.50,000 from an existing amount of Rs.30,000.
- No deduction of TDS under Section 194A. Availability of benefits for interest received from recurring and fixed deposit schemes.
New Income Tax Changes from April 1 by Income Tax Department
In the Budget of 2017, several changes related to income tax were announced. These changes will come into effect from April 1, 2017. Some of the important changes are as follows:
- The income tax rate for people earning Rs.2,50,000 to Rs.5 lakh per year has come down to 5%, but people earning over Rs.50 lakhs p.a. will have to pay an additional surcharge along with the applicable tax rate. The surcharge is 10% for people earning an income of Rs.50 lakhs to Rs.1 crore and the surcharge is 15% for people earning an income of over Rs.1 crore.
- Filing of ITR will become easy for people earning up to Rs.5 lakhs as the government will introduce a simplified 1 page form for them. People who file their ITR using this form for the first time will not be scrutinized by the Income Tax Department.
- No deductions can be claimed for investments made under the Rajiv Gandhi Equity Saving Scheme from AY (Assessment Year) 2018-2019.
- People will have to pay a penalty of Rs.5,000, if they do not file ITR for the present FY (Financial Year) on time (latest by December 31). If they file after December 31, the fine amount will increase. The fine is capped at Rs.1,000 for people who earn up to Rs.5 lakhs annually.
- According to a report by Economic Times, the holding period for long term immovable property has been reduced to 2 years. It was 3 years before. Also, if such property is held beyond 2 years, it will be taxed at 20% and will be eligible for reinvestment and exemptions.
- In case of long term capital gains tax, the base year for cost indexation has been changed from April 1, 1981 to April 1, 2001. Tax exemption will be available, if people re-invest in some selected redeemable bonds. The exemption will also be available for investments in REC and NHAI bonds.
- From June 1, 2017, people whose rental payments are more than Rs.50,000 per month have to subtract 5% TDS.
- From July 1, 2017, people will not be able to file their ITR without Aadhaar.
- People who make partial withdrawals from NPS (National Pension System) do not have to pay tax on the same. They can withdraw 25% of their own contribution before retiring in case of emergencies.
- Health, Two-wheeler and Car insurance premiums may increase from April 1, 2017.
- People who do not keep a minimum of Rs.5,000 per month in their SBI accounts will have to pay penalty from April 1, 2017.
Apart from these, there are other changes that will be introduced. People are advised to keep themselves updated about these changes as they may have a direct impact on their income tax.
Income tax slab for individual tax payers & HUF (less than 60 years old) (both men & women)
| 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% |
| Surcharge: 10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore. 15% of income tax, where total income exceeds Rs. 1 crore. | |
| Cess: 3% on total of income tax + surcharge. | |
| * Income upto Rs. 2,50,000 is exempt from tax if you are less than 60 years old. | |
Income tax slab for individual tax payers & HUF (60 years old or more but less than 80 years old) (both men & women)
| Income Slab | Tax Rate |
|---|---|
| Income up to Rs. 3,00,000* | No Tax |
| Income from Rs. 3,00,000 – Rs. 5,00,000 | 5% |
| Income from Rs. 5,00,000 – 10,00,000 | 20% |
| Income more than Rs. 10,00,000 | 30% |
| Surcharge: 10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore. 15% of income tax, where total income exceeds Rs.1 crore. | |
| Cess: 3% on total of income tax + surcharge. | |
| * Income up to Rs. 3,00,000 is exempt from tax if you are more than 60 years but less than 80 years of age. | |
Income tax slab for super senior citizens (80 years old or more) (both men & women)
| Income Slab | Tax Rate |
|---|---|
| Income up to Rs. 2,50,000* | No Tax |
| Income up to Rs. 5,00,000* | No Tax |
| Income from Rs. 5,00,000 – 10,00,000 | 20% |
| Income more than Rs. 10,00,000 | 30% |
| Surcharge: 10% of income tax, where total income is between Rs. 50 lakhs and Rs.1 crore. 15% of income tax, where total income exceeds Rs.1 crore. | |
| Cess: 3% on total of income tax + surcharge. | |
| *Income up to Rs. 5,00,000 is exempt from tax if you are more than 80 years old. | |
- Income Tax Slab for Individuals and Hindu Undivided Families:
These are the slab rates for FY 2016-17 (AY 2017-18) These income tax slab rates are also applicable for : FY 2015-16 (AY 2016-17) FY 2014-15 (AY 2015-16)
On all the tables listed below, Education Cess of 2% and SHEC of 1% will be levied on the tax computed using the rates given below.
Under Section 87(A), an Income Tax Rebate of Rs.2,000 is provided for all individuals earning an income that’s less than Rs.5,00,000 per annum.
- Tax applicable for individuals below 60 years
| Annual Income | Tax Rates | Education Cess | Secondary and Higher Education Cess |
|---|---|---|---|
| Up to Rs.2,50,000 | Nil | Nil | Nil |
| Rs.2,50,001-Rs.5,00,000 | 5% | 2% of income tax | 1% of income tax |
| Rs.5,00,001-Rs.10,00,000 | Rs.12,500 + 20% | 2% of income tax | 1% of income tax |
| Above Rs.10,00,000 | Rs.1,12,500 + 30% | 2% of income tax | 1% of income tax |
- Tax applicable for individuals over 60 years and under 80 years
| Annual Income | Tax Rates | Education Cess | Secondary and Higher Education Cess |
|---|---|---|---|
| Up to Rs.3,00,000 | Nil | Nil | Nil |
| Rs.3,00,001-Rs.5,00,000 | 5% | 2% of income tax | 1% of income tax |
| Rs.5,00,001-Rs.10,00,000 | Rs.10,00 + 20% | 2% of income tax | 1% of income tax |
| Above Rs.10,00,000 | Rs.1,10,000 + 30% | 2% of income tax | 1% of income tax |
- Tax applicable for individuals over 80 years and above
| Annual Income | Tax Rates | Education Cess | Secondary and Higher Education Cess |
|---|---|---|---|
| Up to Rs.5,00,000 | Nil | Nil | Nil |
| Rs.5,00,001-Rs.10,00,000 | 20% | 2% of income tax | 1% of income tax |
| Above Rs.10,00,000 Rs.1,12,500 | Rs.1,00,000 + 30% | 2% of income tax | 1% of income tax |
Income Tax should be deducted at applicable rates as above along with surcharge and Education Cess. The individuals who are earning over Rs.50 lakh and under Rs.1 crore will be required to pay a surcharge of 10% tax on the total income and the individuals who are earning over Rs.1 crore, a surcharge of 15% will be applicable as the income tax.
- Businesses:
The following tables indicate the tax slabs for businesses.
- Income Tax Slab for Co-operative societies :
| Income Tax Slab | Tax Rates |
|---|---|
| Total income less than Rs.10,000. | 10% of the income. |
| Total income greater than Rs.10,000 but less than Rs.20,000. | 20% of the amount by which it exceeds Rs.10,000. |
| Total income greater than Rs.20,000. | 30% of the amount by which it exceeds Rs.20,000. |
Income Types or Taxable Heads of Income:
Income from different sources is taxed differently. These sources are called heads of income and are as follows:
- Income From Salaries:
- All income received from an employer by an employee is taxed under this heading. Employers are bound to withhold tax compulsorily under Section 192 if the income of their employees falls under a taxable bracket. Employers must also provide a Form 16, which contains details of tax deductions and net paid income.
- Income from House Property:
- Income here is taxable if the assesse is the owner of a property that’s been given out on rent. The property should not be used for business or professional purposes. Individuals and HUFs can claim one property as “self-occupied”, which means you and your family live there, and do not have to pay taxes on this. Income from house property is calculated as under:
- Gross Annual Value (GAV) = x
- Less: Municipal Taxes Paid = (y)
- Net Annual Value = x-y
- Less: Deductions under Section 24 = z
- Income from House Property = (x-y) – z
- Profits and Gains Of Business or Profession:
- These are the taxes that will be applicable for income from business or professional services rendered. The provisions for computing the tax on this type of income is in accordance with Sections 30 to 43D.
- Income from Capital Gains:
- This is for the taxes applicable on income that arises when capital assets are transferred. Capital assets are property of any value that’s held by the assesse like land, buildings, equity shares, bonds, debentures, jewellery, art, assets, etc.
- Income from Other Sources:
- Basically, any source of income that cannot be classified under the above heads of income falls under this heading. There are also some specific and pre-determined incomes which fall under this heading, like:
- Income by way of dividends.
- Winnings from horse races / lotteries.
- Employee’s contribution towards staff welfare schemes, any fund set up under the ESIC Act that’s received by the employer from the employees.
- Interest on securities like debentures, government securities and bonds.
- Gifts.
- Interest on compensation.
- Rental income other than house property.
- Family pension received after the death of the pensioner.
- Interest income that is earned other than by way of securities.
