Benjamin Franklin had rightly said that only two things are certain in this world – death and taxes. So, while there can’t be any escape from taxes, particularly if someone has taxable income, everyone tries to save as much tax as possible. As the new financial year has already begun, people have started mulling over where to invest and how to save tax during this year. However, saving the maximum tax is not possible without looking at the changes introduced in the Union Budget 2018. So, let us review the key tax changes which may impact your cash flows and investment decisions for the financial year 2018-19:
1. Standard Deduction for Salaried Individuals and Pensioners
The Finance Act, 2018 re-introduced standard deduction of up to Rs 40,000 for salaried taxpayers. Such deduction is allowed in lieu of the current transport allowance of Rs 19,200 (Rs 1,600 p.m.) and reimbursement of medical expenses of Rs 15,000 p.a. The net benefit for the employees already claiming a deduction for transport allowance and medical reimbursement will be Rs 5,800 (Rs 40,000 – Rs 19,200 – Rs 15,000).
“It is important to note here that pension received for past employment is also taxable as salary. Therefore, the benefit of standard deduction will also be available to pensioners. Till now pensioners were not allowed any exemption for transport allowance or medical reimbursement. Therefore, it will result in additional Rs 40,000 tax- free income for all pensioners,” says Chetan Chandak, Head of Tax Research, H&R Block India.
2. Enhanced deduction u/s 80D
Earlier, an individual was allowed a maximum deduction of up to Rs 30,000 in respect of expenditure incurred by him for the medical insurance for himself, his spouse or children. He was also allowed additional deduction of up to Rs 30,000 for the expense incurred for the medical insurance policy for his parents. The deduction of Rs 30,000 was restricted to max Rs 25,000 if the insured persons were less than 60 years of age.
“In case the assessee himself or his/her spouse or any of his/her parent was 80 years or more and was not covered under any insurance policy, then the deduction u/s 80D he/she was allowed to claim for the medical expenditure incurred on the health of such a person was Rs 30,000. The Budget 2018 extended this benefit to all senior citizens (i.e. 60 years and above),” says Chandak.
Also, this limit has now been increased to Rs 50,000 from the existing Rs 30,000 in case of all senior citizens (i.e. above 60 years). In a nutshell, an individual taxpayer can claim a maximum deduction of up to Rs 1 lakh under Section 80D if he or his family members and his parents are 60 years or above.
A summary of deduction allowable under Section 80D is explained in the table given below:
Nature of amount spent | Family Member | Parents | |
Age below 60 years (value in Rs) | Age above 60 years (value in Rs) | Age below 60 years (value in Rs) | |
A. Medical Insurance | 25,000 | 50,000 | 25,000 |
B. Central Govt Health Scheme | 25,000 | 50,000 | – |
C. Health Check-up | 5,000 | 5,000 | 5,000 |
D.Medical Expenditure | – | 50,000 | – |
Maximum deduction | 25,000 | 50,000 | 25,000 |
Further, in case of single premium health insurance policies which cover more than one year, the deduction shall be allowed on a proportionate basis for all those years for which health insurance coverage is provided, subject to the specified monetary limit.
3. Deduction limit under section 80DDB raised to Rs 1,00,000
This deduction u/s 80DDB is allowed to an individual or HUF taxpayer who pays for the medical treatment of critical illness for himself or any other family member. At present, this deduction is allowed up to Rs 80,000 for the very senior citizen, up to Rs 60,000 for the senior citizen, and Rs 40,000 in any other case.
The Budget 2018 has raised the limit of deduction under this section to Rs 1,00,000 for all senior citizens (i.e. any one above 60 years in age). There is no change in the deduction allowed for expenditure incurred in any other case. i.e. for person who is below 60 years of age.
4. Bank interest up to Rs 50,000 will be tax exempt for senior citizens
A new section 80TTB has been introduced from AY 2019-20 which allows deduction of up to Rs 50,000 to any senior citizen (above 60 years) having interest income from deposits with banks or post office or co-operative banks. Aggregate interest earned on saving deposits and fixed deposits will be eligible for deduction u/s 80TTB up to Rs 50,000.
“No deduction under section 80TTA shall be allowed to the senior citizens claiming the benefit u/s 80TTB starting AY2019-20. Further, the corresponding amendment has been proposed in section 194A to provide that no tax shall be deducted at source from payment of interest to a senior citizen up to Rs 50,000,” says Chandak.
5. Enhanced Tax Benefit on Gratuity
Gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by the widow of the deceased employee, children or dependents was till now exempt up to Rs 10,00,000 as per the recent changes in the Gratuity Act. This exemption will be enhanced to Rs 20,00,000. So the taxpayers who are going to retire or receive gratuity starting 1st April 2018 will be able to claim higher exemption.
6. NPS withdrawal exemption extended to non-employees
Any amount received by an employee from the National Pension System (NPS) either on closure or opting out from the scheme is exempt up to 40% of the total accumulated balance in his NPS account at the time of withdrawal. Till now this exemption was not available to non-employee account holders. The Budget 2018 has extended the said benefit to all NPS subscribers.
7. No capital gains tax if the variation in stamp value and the actual consideration is up to 5%
Earlier, if a taxpayer sold an immovable property for a consideration which was less than the value adopted by the Stamp authorities, then the stamp value was deemed as the actual sales consideration. “This treatment resulted in higher amount of capital gains even if the seller had not actually gained anything due to such higher stamp valuation. Further, such difference in the stamp value and the actual consideration disclosed by the parties was also taxed in the hands of the buyer. This resulted in hefty double taxation,” says Chandak.
In order to minimise hardship in case of genuine transactions, now no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration does not exceed 5% of the sale consideration.
