February 1, 2018

Budget 2018 Highlights -10 changes every investor must know

The budget for FY 2018-19 is now tabled. Let us see the Budget 2018 Highlights and what are the points that will affect to us individually.

Budget 2018 Highlights

Budget 2018 Highlights – 10 changes you must know

1) No Change in Income Tax Slab Rates for FY 2018-19  or AY 2019-20

There is no change in IT Slab Rates for individuals. Hence, the applicable tax slab will be as below.

Latest Income Tax Slab Rates for FY 2018-19 (AY 2019-20)

As I said above, there is no change in income tax slab rates for individuals.

Refer a detailed post at “Latest Income Tax Slab Rates FY 2018-19 (AY 2019-20)“.

2) EPF Contribution by Government for new employees and women

The government will contribute 8.33% of Employee Provident Fund (EPF) for new employees by the Government for three years.

Women employees contribution to EPF now reduced to 8% from the earlier 12%. This reduced contribution will be for the first 3 years of employment.

Both these moves will bring in more take home for both new employees and women.

Along with this, Government will contribute 12% to EPF for new employees for three years by the Government in sectors employing the large number of people like textile, leather, and footwear.

Also, paid maternity leave is now increased from 12 weeks to 26 weeks, along with the provision of crèches.

3) Rs.40,000 Standard Deduction for Salaried individuals and pensioners

Rs.40,000 standard deduction is available for all salaried individuals in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.

This is I think a big relief many as it will rejoice the salaried individuals.

4) TDS limit raised for Senior Citizens

Exemption of interest income on deposits with banks and post offices to be increased from Rs.10,000/- to Rs.50,000/- and TDS will not be required to be deducted on such income, under section 194A. This benefit shall be available also for interest from all Fixed Deposits (FDs) schemes and recurring deposit schemes.

But do remember one thing that AVOIDING TDS DOES NOT MEAN AVOIDING TAX.

5) Sec.80D limit raised to Rs.50,000 for Senior Citizens

limit of deduction for health insurance premium and or medical expenditure from Rs.30,000/- to Rs.50,000/-, under section 80D. All senior citizens will now be able to claim the benefit of the deduction up to Rs.50,000/- per annum in respect of any health insurance premium and/or any general medical expenditure incurred.

This I think a much-awaited relief to many senior citizens. Because the premium of health insurance will increase as you grow older. Hence, by increasing Sec.80D limit, Government really helped this class.

6) Limit of deduction on medical expenditure critical illness for senior citizens raised

The limit of deduction for medical expenditure in respect of certain critical illness from, Rs.60,000/- in case of senior citizens and from Rs.80,000/- in case of very senior citizens, to Rs.1 lakh in respect of all senior citizens, under section 80DDB.

7) Pradhan Mantri Vaya Vandana Yojana extended to March 2020

Pradhan Mantri Vaya Vandana Yojana is the 10 years 8% guaranteed pension scheme meant for senior citizens. The earlier deadline of the closure of this scheme was 3rd May 2018. Now, this is extended to until March 2020.

Also, the good news is that the earlier limit under this scheme was Rs.7,50,000, which is now increased to Rs.15,00,000.

Refer the complete details about this plan in my earlier post “Pradhan Mantri Vaya Vandana Yojana -LIC’s 8% Guaranteed Pension Plan“.

8) Long Term Capital Gain Tax (LTCG) levied on Stocks and Equity Mutual Funds

The biggest jolt to equity investors is the introduction of LTCG regime. Govt now introduced  LTCG on the income exceeding Rs.1 lakh at the rate of 10% without allowing the benefit of any indexation. However, all gains
up to 31st January 2018 will be grandfathered.

Do remember that the time horizon to measure the STCG and LTCG will remain same. There is no change in STT rates. Hence, STCG on equity and equity mutual funds will continue at 15% rate.

Let us assume that your purchased price of the stock is at Rs.100 (purchased before 31st January 2018) and the highest price traded price on 31st January 2018 is at Rs.120. This Rs.20 will be tax-free for you. There is no tax on this Rs.20 gain as Rs.120 is considered as the holding price.

Now let us assume that you sold the stock after a year at Rs.150, then only Rs.30 is taxed at 10% but not the whole Rs.50. Hence, any gain up to 31st Janaury 2018 is still tax-free for all investors.

Refer my latest post in this regard in detail-Budget 2018 LTCG Tax on Stocks and Mutual funds

9) Dividend Distribution Tax (DDT) on Equity Mutual Funds

Up to now dividend you receive from equity mutual fund was tax-free. However, now be ready to pay the 10% DDT on such income.

10) Education and Health Cess increased to 4%

Currently, there is 3% cess on personal income tax consisting of 2% for primary education and 1% for secondary and higher education.

Now this 3% existing educational and higher education cess is replaced to 4% HEALTH AND EDUCATION CESS.

Other important proposals of Budget 2018 Highlights are as below.

a) National Health Protection Scheme

The government will launch the National Health Protection Scheme. In this scheme, each family will be covered for Rs.5 lakh of health insurance per year. This will be for secondary and tertiary care hospitalization.

This will be the world’s largest government-funded health care programme. This is mainly to the poor and vulnerable families.

Along with this, Government will provide nutritional support to all TB patients at the rate of Rs.500 per month for
the duration of their treatment.

b) E-Assessment is made mandatory

Now no more physical IT return filing allowed. From now onward you have to file IT Returns only through online mode. This will actually reduce the time taken to process your IT returns.

c) Customs Duty on Mobile Phones increased to 20%

Customs duty on Mobile Phones increased from existing 15% to 20%. So the mobile price will be increased accordingly to you.

d) Corporate Bonds investment grade moved from existing AA to A

Earlier most regulators used to permit only AA graded bonds as eligible for investment. Now A grade (lower than AA) bonds are also be considered for investment. Hence, the risk in debt portfolio of ULIPs or Debt Funds will increase.

e) Merger of 3 PSU General Insurance Companies

Three public sector general insurance companies National Insurance Company Ltd., United India Assurance Company Limited and Oriental India Insurance Company Limited will be merged into a single insurance entity and will be subsequently listed.

f) Minimum investment period of Capital Gain Bonds period raised to 5 years

Earlier you may avoid tax on capital gains from the sale of real estate by buying bonds issued by NHAI or REC (up to 50 Lakh) and holding for 3 years. Now you will have to wait for 5 years.

g) Health Insurance premium can be claimed yearly

When you pay your health insurance in advance for multiple years, then now onwards you can claim the tax benefits under Sec.80D by dividing equally among these years.

Let us assume you have paid Rs.30,000 as health insurance premium for 3 years. Now you can claim Rs.10,000 for the next 3 years by equally dividing.

h) Funds-Of-Funds (FOF) treated as equity funds for taxation

If FOFs invest in ETF (Exchange Traded Funds) which only invest in listed equity shares of domestic companies, then such FOFs are treated equally like equity funds for taxation.

Overall I feel the balanced budget considering the general election mood. This is the post I wrote based on Finance Minster’s Budget Speech. I will update this post as and when I get the clarity on this subject.

63 Comments

  1. Dear Basu,

    I have a confusion on standard 40,000 deduction for Medical & Conveyance starting from current FY. Appreciate if you can clarify it.

    I my organisation while declaring for benefit plan, it gives 2 options for Conveyance declaration

    1. Rs 19200 non taxable amount Per year without any bill submission i.e 1600 Per month
    2. Claiming own car expenses (greater of lesser than 1600 CC) with fuel bill/Road Tax/Driver Salary max up to 21,800 for a car which is less than 1600 CC.

    Now current financial year has same 2 options available in Payroll declaration portal (of course with new budget guidelines).

    Now my query is, from current financial year, if I opt for submitting relevant fuel bills/road tax receipt for my car (less than 1600 CC), will it make any difference to taxable/non taxable income?

    I still believe that even submitting bills for car can give me Rs 21,800 max non taxable and Medical reimbursement (without bills) would be Rs 15,000 that amounts to (21,800 + 15000)= 36,800 in total which is less than 40000 deduction.

    So should I refrain from declaring anything and rather take Rs 40,00 standard deduction and be happy rather than taking the hassle of bill submission.

    Am I missing anything?
    Appreciate your input.

    Reply
  2. Dear Mr BASAVARAJA .
    In reply to Mr Gautam , you have suggested that pensioners of EPS 95 are eligible for standard deduction announced in the recent budget. This appears to be premature & a little misguidance as of now . I believe this needs to be specifically clarified by CBDT , and only then we can take it as some relief – though a minor one .

    Reply
    • Din- There is no such error. Because your pension income also fall under the head of SALARY for the purpose of taxation.

      Reply
  3. dear sir,
    Budget 2018 has introduced std deduction of Rs 40,000/- for salaried employees and pensioners. I am not a pensioner but I am getting meagre EPFO pension of Rs 2000 pm under EPS-95 ( as applicable to exempted institutions ).
    My question is whether I will get benefit of this deduction for Rs 24000 only.
    Second question is that is this std deduction applicable to PMVVY , a pension scheme, and can I avail this deduction by taking PMVVY

    Reply
    • Rajinder-Yes, you are eligible for this deduction. This is applicable to all schemes where a pensioner receiving income in the form of pension.

      Reply
      • thank you for prompt reply sir sir, then investing 7.5/15 lac in PMVVY for non pensioners is a boom as out of 60000/120000 they will get deduction of 40000

        Reply
  4. Basu, If I redeem an amount of 1,10,000 out of my 5,00,000 mutual fund corpus after say 2 years. Will the LTCG of 10% applies only to the redeemed amount ie 10,000 ?

    Reply
    • Alok-The LTCG is not on the redeemed amount but only on the gain which you get after redemption.

      Reply
  5. Hi Basavraj, thanks a lot for the quick summary. Under 80D for my dependent parents, Can I claim medical expenditure like medicine, consultation or test along with earlier health insurance and health check up cost?

    Reply
    • SKP-You can claim if those check up costs are for preventive health check up.

      Reply
  6. Hi,

    I just want to highlight one point:
    Rs.40,000 Standard Deduction for Salaried individuals and pensioners:
    This is I think a big relief many as it will rejoice the salaried individuals.

    The current plan we have is, 15000 medical PA+1600 Conveyance PM= Total 15000+19200 = 34200.

    So effectively 5800 is becoming the TAX FREE. If you are in tax slab then you are benefiting as follows.
    5% = 25PM.
    20%= 97PM.
    30%=145PM.

    Do you think that, this is an big relief to an salaried employees?.

    Already Media & BJP misleading this. Now CFPs also misleads salaried people.

    Reply
      • Basu- You said it is a big rejoice to salaried individuals.

        Reply
          • Great. CFPs are saying “Saving 25PM, is a rejoice to a salaried persons”.
            Great Budget2018,
            Great CFPs,
            Great GST,
            Great India.

            Reply
            • Mani-If one class of society (salaried) not satisfied, then it does not mean the whole budget is BAD. Also, there is no budget on this earth which can satisfy YOU in all aspect 🙂 There are many who are ready to pay Rs.1,60,000 interest on home loan to banks for the sake of saving the tax of Rs.60,000 (considering the person in question at 30% tax-bracket).
              Think about the pensioners saving on Rs.40,000 per year. It may help to their on going medical expenses.

              Reply
              • Sir, what you said is true.
                I am not questioning for not changing slab rates.
                Next year is the election season so they are showing false love on Framers and rural areas.

                But “Rs.40,000 Standard Deduction for Salaried individuals” is not at all a advantage to Salaried people. Please don’t highlight it as a great offer to us, even media is highlighting this point.

                Also, by showing 40000 as standard deduction, and increasing Educational Cess from 3 to 4% Indirectly government making fools to salaried people. I have expected at least the persons who are having good knowledge in this will expose this point.

                Finally in your blog also you are saying “It is a big rejoice to salaried people”.
                BIG DISAPPOINTMENT

                Reply
                • Mani-In budget there are always some positives and negatives. It hurts you and me when the changes are directly pointing to our income. It is obvious. I said that point mainly considering pensioners. At least they can save some tax, which can be beneficial for their medical expenses. I know that they harmed more to tax-payers (mainly salaried) to fund their populist eyeing on 2019 election.

                  Reply
                • I feel Mani makes more sense here.

                  Reply
  7. What is the 1 lakh limit specified in the new LTCG tax regime? Pl explain with an exmaple

    Reply
  8. Dear Basu Sir,

    Total negative budget for salaried class i feel.
    Regarding Point 3, i feel that is also NOT a big relief i feel because already transport allowance of 19200 is exempted and 15000 medical reimbursement is also exempt. So, adding together becomes 34,200 which is already exempt. By increasing it to 40000, they have given 5800 more which is very meagre. No benefits for salaried class at all. I think current government is losing salaried class openion. From last 4 years no benefits given to salaried class.

    regards

    Reply
    • Rajesh-Yes, many points are negative because they concentrated on rural considering the 2019 election. Yes, the amount of benefit of standard deduction is meager. However, it is better than nothing 🙂

      Reply
      • but Basu-sir, with cess increased to 4%, we will ending paying more!!!!

        Reply
  9. can u pl dwell on LTCG now? I have already broached the subject sometime back, hope,u remember. the pros N cons. anyway to avoid?

    Reply
  10. Basavaraj Ji,

    Is it ok to go with EMF for more than 10 yrs. Horizon still?

    Or, now, SSY, PF, ULIP options are better now atleast upto next FY.

    Reply
    • Paras-YES. Because real return with meager tax is better than debt products in long term.

      Reply
  11. Basu, crisply summed up to the comprehension. Will await your detailed analysis for a clear picture. Thanks and keep on doing good work!!

    Reply
  12. I was just waiting for a simplified version and you made it here. Thank you so much!

    Reply
  13. Is LTCG is applicable for ELSS fund too??

    Reply
  14. Hello Sir,

    Will Long Term Capital Gain on Equity Mutual Fund is applicable on SIP as well

    Reply
      • Sir,

        will it right decision now to choose EPF Higher pension option??Coz LTCG on Morethan one year investments

        Reply
        • Sareddy-EPF is a great debt product. But for long term goals, we also need equity.

          Reply
  15. Thank u very much
    Their is lot of to get clarity & will get in your coming articles.

    Reply
  16. Very good information basu i was refreshing your website from morning to read your analysis on this. Its good review

    Reply
  17. Basu – Please confirm if #3, Standard Deduction will replace 19200 (conveyance) + 15000(medical) = 34200.
    hence, net benefit is only 5800.

    Reply
    • And on the other end, Edu and Health Cess increased to 4%., Which will be i think nullified the Standard deduction for 5 Lk or above salaried employees.

      One type of Lolipop is given by FM to us in terms of Standard deduction

      Reply
  18. HI basu . thanks for quick update . Just one doubt . DDTax is to be paid by the MF house / the company giving dividend. Now we have to pay 10 % on dividend income ? need clarification

    Reply
    • Prayank-Earlier there was no DDT on equity (it was only for debt funds which were paid by Mutual Fund Companies directly). Hence, I think the same process will be applicable to DDT on equity.

      Reply
  19. Standard deduction of RS 40,000 is other than existing Rs 15000/- medical reimbursement and LTA or this will replace these two?
    any other things which will come under standard deduction ?

    Reply
    • Kumar-As of now, there is no clarity. Let us wait for the complete Bill.

      Reply
  20. Thank you Basu for the quick Top 10 updates from Budget 2018!

    Regards,
    Shravan

    Reply
  21. This is not good about long term capital gain tax. Till now there was no tax but suddenly 10% that too much. Now people will lose interest on equity.

    Reply
      • Would hon’ble FM kindly clarify on his statement made at the start of the speech: “There is premium on honesty”? As an honest tax payer what gift do I get as “premium” now? What is he doing to improve tax net? What is he doing to bring the evaders to justice in a quick and effective manner so that people don’t dare to evade. What is he doing to boost digital economy? He is merely arm twisting honest tax payers more with measures like LTCG tax. Is that the premium for honesty?

        Yet another laughable statement during the speech was “It is generally believed that businessmen/professionals earn more income, but income tax data shows that the salaried people are earning more”. Well, is the FM so naive? What choice poor salary earners have than to pay tax? Is it not well known that many businessmen and professionals deal in cash and evade a lot of tax? What do all those skewed figures of no of tax payers vs no of car buyers / house buyers / foreign travels etc indicate?

        At least be honest Mr FM.

        Reply
        • Mayank-This budget is mainly concentrated on 2019 election. So such statements are normal.

          Reply
  22. Thanks for summing and nicely explaining it promptly

    Reply
  23. Hi Basu.,
    Thanks for the quick highlights(budget).
    Can you please explain the LTCG on equity mutual funds in detail? especially without indexation.
    How does this affect the long term planning of a big corpus?
    What and all one must consider or change his existing long term plans(more than 10 years) when invest in equity mutual funds?
    Thanks in advance for your reply.
    Dheena

    Reply
    • Dheena-Surely I will write a post separately on this aspect. Just wait.

      Reply
  24. Is Long Term Capital Gain Tax only for Equity ? What about other investments like PPF, SSA, PF? Will it be applicable?

    Reply
    • Meren-This current change is only for Equity and Equity Mutual Funds.

      Reply

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