Changes in Income Tax Law come into effect from April 1, 2018

Changes in Income Tax Law come into effect from April 1, 2018. Finance Minister Arun Jaitley proposed various income tax changes in the Budget 2018.  These changes will come into effect from April 1, 2018. These tax changes will impact on many taxpayers in a number of ways. However, he has kept the basic income tax rates, exemption and the slabs unchanged.

Some key changes in income tax are a standard deduction for salaried employees, increase in cess and introduction of LTCG on equities. These are some specific changes that are applicable to the fiscal year 2018-19. Every taxpayer has to know the changes announced in the budget.

Here are the Income Tax changes which will come into effect from April 1, 2018:

Standard Deduction Introduced:

The first change is a relief of tax deduction for salaried individuals. The introduction of standard deduction in Income Tax will likely to benefit around 2.5 crore salaried individuals. There was a deduction of Rs. 19200 for transport allowance and Rs. 15000 for medical reimbursement. But after 1 April, there will be a flat deduction of Rs. 40000 for every salaried person. Even pensioner will get the benefit of these deductions.

LTCG Reintroduced:

Long-term capital gains (LTCG) tax has been reintroduced on equity and equity-related mutual fund investments. If your gains exceeding the limit of Rs. 1,00,000 upon the sale of equity funds. A new 10 percent tax plus 4 percent extra cess will be charged. However, for the benefit of taxpayers, the gains till January 31, 2018, will remain tax-exempt. This means after January 31 tax will be charged on gains (10% LTCG Tax + 4% Cess).

Increase in Cess:

Earlier the cess (Education Cess) on tax liability was 3 percent. The government has raised the cess from current 3 percent to 4 percent. Now the cess (Health and Education Cess) is increased by 1 percent on taxable income.

Tax-free benefit on NPS Withdrawl:

In his budget 2018 speech, Arun Jaitley extended the benefit of tax-free withdrawal to non-employee subscribers on withdrawal from NPS (National Pension System). Non-employee subscribers currently don’t enjoy this exemption. The new exemption in form of tax-free withdrawal to non-employee subscribers will come into the effect financial year 2018-19.

Raising the TDS limit for senior citizens:

The threshold for deduction of tax at source on interest income for senior citizens is proposed to be hiked from Rs. 10,000 to Rs. 50,000. It means that the TDS will not be deducted if the annual income of senior citizens will be up to Rs. 50,000.

Increase in the tax-exempted limit of senior citizens:

An increase of Rs. 50,000 in the Tax-exempted limit for the senior citizens. The tax will not be charged if the interest income of an individual is up to Rs. 50000. Interest income included interest earned from Fixed Deposit(FD) and Recurring Deposit(RD).

Tax Benefit on Single Premium Health Insurance Policies:

Under the proposed changes in Budget 2018, in case of single premium health insurance policies having the cover of more than one year, the deduction will be allowed on a proportionate basis for the number of years for which health insurance coverage is provided, subject to the specified limit.

For example, your insurer is offering a 10 percent discount on health insurance premium if you pay Rs. 40,000 for the two-year cover. Under the proposed changes, the individual can claim Rs. 20,000 in both years.