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Income tax changes that will effect from April ,2018


  • Re-introduction of standard deduction

In a relief to the salaried class, the FM has re-introduced standard deduction of Rs 40,000 from salary income. Apart from salaried class, even pensioners will be allowed to avail the benefit of this deduction. To avail this tax benefit one would not be required to submit any proofs or bills, it can be claimed straightaway.

  • Transport allowance and medical reimbursements to become taxable

While standard deduction has been reintroduced, the tax benefit available on transport allowance and medical reimbursements has been taken away. Currently, transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000 per annum is exempted from tax. If the Budget is passed by the Parliament, then starting from April 1, 2018, these two allowances will become a taxable part of your salary.

  • Cess hiked to 4 per cent

Cess levied on your tax liability has been hiked by 1 per cent from the current 3 per cent to 4 per cent. This cess will be called “Health and Education Cess.”

  • Introduction of tax on long-term capital gains (LTCG) on equity and equity-oriented mutual funds

Starting from April 1, tax will be levied on LTCG arising from the sale of equity and equity-oriented mutual funds. Earlier, these gains were exempt from tax. It will be charged at a rate of 10 per cent plus cess at 4 per cent. However, to provide relief to small investors, LTCG up to Rs 1 lakh will be exempt from tax per fiscal. In addition to that, gains accrued on the equity shares and equity-oriented mutual funds held till January 31, 2018 will remain tax exempt.

  • Increase in tax-exempt limit of interest income for senior citizens

In a bid to provide relief to senior citizens, Budget has proposed to increase the tax exempt limit on interest income for senior citizens from Rs 10,000 to Rs 50,000. Interest income will include interest earned from fixed deposits (FD) and recurring deposits (RD).

  • Raising the threshold limit for the TDS for senior citizens

Along with the raising the limit of tax-exempted interest income for senior citizens, an amendment has been proposed in the tax deducted at source (TDS) TDS law. As per the proposed change, no TDS will be deducted from interest incomes up to Rs 50,000 a year for senior citizens.

  • Hike in the deduction limit on medical expenditure

It had been proposed to raise the limit of deduction under section 80D and section 80DDB for senior citizens. Under section 80D, the limit has been proposed to be hiked from Rs 30,000 to Rs 50,000. Similarly, under section 80DDB, the limit has been hiked to Rs 1 lakh for all senior citizens from Rs 60,000 (in case of senior citizens) and Rs 80,000 (for super senior citizens).

  • Dividend distribution tax on equity mutual funds

Tax at the rate of 10 per cent will be levied on the dividends distributed in case of equity mutual funds. However, this dividend will remain tax-free in the hands of investors. The tax will be deducted by the fund houses before distribution of dividend. This will impact investors who were relying on dividends from balanced funds as a source of regular income.

  • Extension of Pradhan Mantri Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) has been proposed to be extended till March 31, 2020. Along with the extension of scheme, the maximum investment limit has also been proposed to increase to Rs 15 lakh.

  • Tax-exemption on NPS corpus for self-employed

For self-employed people, it has been proposed to exempt 40 per cent of the total amount payable from tax upon closure of National Pension System (NPS). This tax benefit will now bring self-employed individuals at par with the salaried class.