Dear Readers,
The Budget for the FY 2018-19 was announced on 1st February, 2018 and it surely created some flurry amongst the investors, especially the fact that Long Term Capital Gains on Equity which were exempt earlier, are now subject to Tax!
Well, let us look at some of the key highlights introduced in the Budget, especially the ones concerning the Investors.
- Long-term (over one year) capital gains on equities are to be taxed at 10% on gains of over Rs 1 lakh on investments without the benefit of indexation. The gains will be calculated on the difference of price between 31st January 2018 and the day on which it is sold.
- Dividends from Equity funds are to be taxed at 10%. This has been done to bring them at par with the Equity funds with growth option, which are now subject to 10 per cent long-term capital- gain tax.
- A government funded health care program, which will be the world’s largest such program, covering over 10 crore families is to be launched. It will provide coverage up to Rs. 5 Lakh per family per year.
- The standard deduction for salaried employees has been reintroduced at Rs 40,000. It replaces the current medical (Rs 15,000 annually) and transport allowances (Rs 19,200 annually).
- Companies with turnover up to Rs. 250 Crores in the FY 2016-17 have been granted the tax rate of 25%. Earlier this provision was applicable to companies with a turnover of Rs. 50 Crores. This will have a very welcoming benefit to the corporates.
- Large corporates are to be asked to meet one-fourth of their financing needs from the bond market. This will boost the Debt market positively.
Here is a sample tax calculation for three different assesse, with Income as Rs. 5 Lakh, Rs. 10 Lakh and Rs. 15 Lakh, let us see how much tax each one will have to pay:
| PARTICULARS | APPLICABLE RATE (%) | TAX YOU PAY | TAX YOU PAY | TAX YOU PAY |
| Income for the FY 2018-19 | 1,500,000 | 1,000,000 | 5,00,000 | |
| Below Rs. 2.5 Lakh | Nil | – | – | – |
| Rs. 2.5 Lakh to Rs. 5 Lakh ( a )* | 5% | 5,000 | 5,000 | 5,000 |
| Rs. 5 Lakh to Rs. 10 Lakh ( b ) | 20% | 100,000 | 100,000 | – |
| Above Rs. 10 Lakh ( c ) | 30% | 1,50,000 | – | – |
| Gross Tax (a+b+c) | 2,55,000 | 1,05,000 | 5,000 | |
| Rebate under section 87A | NA | NA | 2,500 | |
| Tax before cess( d ) | 2,55,000 | 1,05,000 | 2,500 | |
| Health and education cess ( e ) 4% of ( d ) (Earlier it was 3%) | 10,200 | 4,200 | 125 | |
| Total Tax to be paid ( e+d ) | 2,65,200 | 1,09,200 | 2625 |
*Note: It is assumed that deduction of Rs. 1,50,000 under Chapter VI-A is fully utilized.
Special Features for Senior Citizens:
- Interest income up to Rs. 50,000 from Bank Deposits, including fixed deposits and post- office deposits is to be exempt.
- The limit for deduction of health- insurance premium under Chapter 80D is to be increased from Rs. 30,000 to Rs. 50,000
- The Pradhan Mantri Vaya Vandana Yojna is to be extended until March 2020. It gives assured 8% returns to senior citizen and is offered by LIC. The current investment of Rs. 7.5 Lakh is also to be revised to Rs. 15 lakh.
- Under Section 80DDB, senior citizen and very senior citizen can now claim tax deduction of up to Rs. 1 Lakh for expenditure on certain critical illness. Earlier, these limits were Rs. 60,000 for senior citizen and Rs. 80,000 for very senior citizen.
Various investment avenues and it’s tax Impact:
| PARTICULARS | TAX ON INTEREST | STCG Tax (%) | LTCG Tax (%) | LONG TERM PERIOD (YEARS) |
| Shares (Listed) | NA | 15.60% | 10.40% | 1 |
| Listed Bonds | Slab Rate | Slab Rate | 10.40% | 1 |
| 54 EC bonds (unlisted) | Slab Rate | NA | NA | NA |
| Tax- Free Bonds ( Listed/ unlisted) covered under Section 10(15) | Exempt | NA | NA | NA |
| Fixed Deposits | Slab Rate | NA | NA | NA |
| Public Provident Fund | Exempt | NA | NA | NA |
| National Savings Certificate | Slab Rate | NA | NA | NA |
| Post Office Deposits | Slab Rate | NA | NA | NA |
| Senior Citizens’ Savings Scheme | Slab Rate | NA | NA | NA |
| Gold | NA | Slab Rate | 20.80% | 3 |
| Real Estate | NA | Slab Rate | 20.80% | 2 |
| Equity- Oriented Mutual Funds | NA | 15.60% | 10.40% | 1 |
| Debt- Oriented Mutual Funds (Listed) | NA | Slab Rate | 20.80% | 3 |
| National Pension System | Slab Rate | NA | NA | NA |
| ULIP’s, money back and other investment linked insurance plans | Exempt | NA | NA | NA |
| Gold Monetisation Scheme deposit certificate | Exempt | Exempt | Exempt | NA |
| Sovereign Gold Bonds | Slab Rate | Slab Rate | Exempt | 1 for listed, else 3 |
| Sukanya Samriddhi Accounts | Exempt | NA | NA | NA |
| Kisan Vikas Patra | Slab Rate | NA | NA | NA |
Source: Value Research.
To understand the detailed impacts of the latest budget on your portfolio, feel free to
contact us at RichVik.