1. Health and Education Cess
The Budget 2018 didn’t make any changes in the tax rates or tax slabs for individuals and HUFs, which continue to remain the same for Assessment Year 2019-20 as applicable for AY2018-19. However, it has proposed a new cess – Health and Education Cess – which will be levied at the rate of 4% of income tax, including surcharge, in place of the current 3% Education, Secondary and Higher Education Cess from Financial Year 2018-19 onwards.
2. Reintroduction of standard deduction
At present no standard deduction is available for salaried employees. However, exemption in respect of transport allowance and reimbursement of medical expenses is provided. The Budget 2018 has proposed a standard deduction of a maximum of Rs 40,000. However, the current exemption in respect of transport allowance and reimbursement of medical expenses will be withdrawn. The net benefit will only be Rs 5,800.
3. Deduction in respect of interest earned by senior citizen
Currently, a deduction up to Rs 10,000 is allowed to all individuals in respect of interest income from deposit accounts (not being time deposits) held with any bank, co-operative society and post office.
It is proposed to allow a deduction up to Rs 50,000 in respect of interest income from deposits held with banks, co-operative society and post office by senior citizens. No separate deduction will be available under section 80TTA for interest income from savings account for senior citizens.
4. Medical treatment of senior citizens for specified diseases (Sec 80DDB)
Under the existing provisions, deduction is available to resident individuals and Hindu Undivided Family (HUF) for any amount incurred for the medical treatment of specified diseases (i.e. malignant cancers, AIDS, etc). The deduction is limited to Rs 60,000 for expenses relating to senior citizens and Rs 80,000 with respect to very senior citizens. The Budget has proposed to enhance the above deduction limit to Rs 100,000 uniformly for both categories.
5. Enhanced deduction for health insurance, medical expenditure related to senior citizens (Section 80D)
Under the existing provisions, a maximum deduction of Rs 30,000 is allowed to an individual or HUF for payment towards health insurance premium including Rs 5,000 towards preventive health check-up for resident senior citizens. Alternatively, very senior citizens can claim a deduction of Rs 30,000 for payment towards medical expenses where there is no insurance. The Budget 2018 has proposed a maximum deduction of up to Rs 50,000. Besides senior citizens can also claim the deduction for medical expenditure.
6. Compensation on termination or modification of employment
Currently, certain compensation in connection with employment is out of the purview of taxation, leading to base erosion and revenue loss.
“It is proposed that any compensation or other payments due to or received by any person in connection with the termination or the modification of the terms and conditions of any contract relating to his employment shall be taxable under the head income from other sources,” according to a Deloitte report.
7. Extending the benefit of tax-free withdrawal from NPS
At present, an employee contributing to the National Pension System (NPS) is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or on his opting out. This exemption was not available to non-employee subscribers. The Budget 2018 now proposes to extend the said benefit to all NPS subscribers.
8. Taxability of Long-Term Capital Gains on equity shares
The Budget 2018 has proposed 10% tax on the long-term capital gains (LTCG) arising out of the sale of equity-oriented mutual fund (MF) schemes as well as equity shares, in case of capital gains exceeding Rs 1 lakh in a year. Also, no benefit of indexation will be given.
9. Exemption from taxation of long-term capital gains invested in specified bonds
Deduction under section 54EC is available in respect of capital gain, arising from the transfer of a long-term capital asset, invested in the long-term specified asset at any time within a period of six months after the date of such transfer. Long-term specified asset means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (RECL); or any other bond notified by the Central Government. Now Section 54EC is proposed to restrict the exemption in respect of capital gain arising from the transfer of a long-term capital asset, being land or building or both only and not other capital assets. Further, it is proposed to allow the benefit when the redeemable period of specified bonds is 5 years.
10. Taxability of single premium health insurance policies
In case of single premium health insurance policies having the term of more than a year, the Budget 2018 has proposed that deduction should be allowed on proportionate basis for the number of years for which the cover is provided, subject to the specified monetary limit.
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