A summary of the income tax changes for individual tax payers that were announced during Budget 2018. These changes will be in effect after April 2018.
Standard deduction re-introduced:
For salaried taxpayers and pensioners, a standard deduction of ₹40,000 has been introduced. The transport and medical allowance has been merged with the standard deduction. Instead to saving the bills and claiming the money later, the amount of ₹40,000 can be automatically subtracted from your salary without proof.
Health and education cess:
The earlier education cess of 3% (2% for primary education cess and 1% for Higher & Secondary education cess) has been replaced with "Health and education cess" of 4%.
Benefits for senior citizens:
Modification in NPS scheme: Until now, only salaried employees had the benefit of partial taxation while withdrawing their NPS investments. This is now available for senior citizens also. This means that, in the event of closure of NPS account, 40% of the accrued corpus will be considered as tax exempt.
Medical deduction limit modified: For critical diseases, the deduction limit bar has been increased from ₹60,000 (for senior citizens above 60) and ₹80,000 (for senior citzens above 80) to ₹1 lakh for all senior citizens under section 80DDB.
Under section 80D, the medical expenses/medical insurance exemption limits has been improved from ₹30000 to ₹50000
Investment limit for PMVVY modified: The Pradhan Mantri Vaya Vandana Yojana scheme had an initial limit of ₹7.5 lakhs and was planned to be kept open for only a year. This scheme would offer senior citizens a guaranteed return of 8%. The scheme has been modified to remain open until March 2020 and the limit bar was raised from ₹7.5 lakh to ₹15 lakhs.
LTCG on equity mutual funds:
The long term capital gains taxes have been revised as 10% upon sale of equity oriented shares over 1 lakh. However, capital gains earned up to January 31st will not be taxed as they are "grand fathered". This means that, you have to pay a tax of 10% for every 1 Lakh worth of shares that you earned after January 31, 2018 in the event of withdrawal.
Let us assume that you have invested ₹1,00,000 in the January of 2016. By January 31, 2018 the investment has grown to ₹2,50,000. By the end of May, your investment has grown to₹ 350000. For the ₹1,00,000 gain that you earned after January 31, 2018, you will have to pay ₹10,000 (10%) as tax. If your capital gain is less than 10%, then you will not be taxed.
Dividend distribution tax:
From April 2018, the government has introduced a dividend distribution tax of 10% on every dividend distributed by equity associated mutual funds. The indexation benefits are nullified. The dividends are tax free in the hands of the investor. The fund houses will deduct DDT before declaring the dividends.
Increase in lock in period of capital gain bonds:
The capital gain bonds under section 54EC have a lock in period of 3 years. Following the new changes, the lock-in period has been increased to 5 years.
EPF contribution changed for women:
The Employee provident fund contribution for women working for the first time has been reduced to 8% instead of 12%.
Increase in penalties:
In case the ITR is not filed, the responsible tax payer will have to pay a penalty of ₹500 per day instead of the earlier ₹100 per day. The penalty for not abiding to the time limit mentioned in the notice is increased from ₹500 per day to ₹1000 per day.