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Personal Income Tax Provisions for FY 2018–19

Death, taxes and childbirth! There's never any convenient time for any of them. 

~ Margaret Mitchell

You may not have made resolutions and lifestyle changes in the New Year, but your financials for sure will undergo a few impacting alterations. Although the finance ministry may not have made significant changes in the income tax slabs and the applicable rates, it did raise the total cess on income tax to 4 per cent. Also, the income tax slabs and exemption limits for assessment year 2019–2020 and financial year 2018–19 have been sub-categorized on the basis of age and residential status. Here’s a point-by-point discussion that may be beneficial for all tax-paying individuals.

  1. 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. 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 However, the current exemption in respect of transport allowance and reimbursement of medical expenses will be withdrawn.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.

The current exemption in respect of transport allowance and reimbursement of medical expenses will be withdrawn.

*Assessment year

It is apparent that the taxable salary has come down on account of the standard deduction.

Tax on pension

Pension drawn by retired persons is also treated as salary and, hence, they also can claim standard deduction. This was not available to pensioners earlier. Also, in a recent clarification issued by the income tax department, if a taxpayer has received a pension from the former employer, it is taxable under the head ‘salaries’. Therefore, a taxpayer will be entitled to claim a standard deduction of Rs 40,000 or the amount of pension, whichever is less.

  1. Deduction on interest earned by senior citizens

Currently, under Section 80TTB, a deduction of 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, cooperative society and post office under Section 80TTB.

Also, the Income Tax Act now allows a deduction of up to Rs 50,000 in respect of interest income from all types of deposits (including savings accounts) held with any bank, cooperative society and post office by senior citizens. However, no separate deduction will be available under Section 80TTA for interest income from savings account for senior citizens.

  1. Medical treatment of senior citizens for specified diseases (Section 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 coming under heading ‘critical illnesses’, examples being malignant cancers and AIDS.

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. The deduction will be allowed only if the taxpayer obtains the prescription for medical treatment from a certified neurologist/oncologist/urologist/haematologist/immunologist or such other specialist.

  1. 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 checkup for resident senior citizens.

Deduction in respect of single-premium health insurance policies or lump-sum payment

A new sub-section, 4A, in Section 80D has been introduced. It states that in case of single-premium health insurance policies having a cover of more than one year, deduction will be allowed on proportionate basis for each of the relevant previous years, subject to the specified monetary limit. The proportion will be arrived at by dividing the sum paid by number of years covered.

Alternatively, very senior citizens can claim a deduction of Rs 30,000 for payment towards medical expenses where there is no insurance. The Income Tax Act now allows a maximum deduction of up to Rs 50,000. Besides, senior citizens can also claim the deduction for medical expenditure.

  1. 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. The Income Tax Act now says 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 their employment will be taxable under the head ‘income from other sources’ (cited in a Deloitte report).

  1. Extending the benefit of tax-free withdrawal from NPS (Section 80CCD)

At present, an employee contributing to the National Pension System (NPS) is allowed to withdraw 60 per cent of the total amount paid by him/her on closure of his/her account or on his/her opting out. Twenty per cent of this amount was taxable earlier.

The government has now given tax relief on this 20 per cent as well. As a result, NPS is now at par with the tax benefits available to PPF (which means that investment at the investment, accumulation and withdrawal stages will be tax-free).

The central government’s contribution to the corpus fund has also been raised to 14 per cent from the existing 10 per cent. This will increase the eventual accumulated corpus of all central government employees covered under NPS.

  1. Taxability of long-term capital gains on equity shares

The Income Tax Act has levied a 10 per cent tax on 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 one lakh rupees in a year. Also, no benefit of indexation will be given.

  1. Exemption from taxation of long-term capital gains invested in specified bonds

Deduction under Section 54EC is available in respect of capital gains arising from the transfer of a long-term capital asset, if invested in a long-term specified asset 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.

The exemption available under Section 54EC has been restricted only in case of capital gains arising from transfer of long-term capital assets being transfer of land or building or both.

  1. Payment of advance tax by senior citizens

As per Section 208, every person whose estimated tax liability for the year is Rs 10,000 or more shall pay his tax in advance, in the form of ‘advance tax’. However, Section 207 gives relief from payment of advance tax to a resident senior citizen. As per this section, a resident senior citizen not having any income from a business or a profession is not liable to pay advance tax.

It also allows a senior citizen to forgo his tax burden or liability through the payment of self-assessment tax. This applies to all tax liabilities of the individual, with the exception of tax deducted at source (TDS).

Personal Income Tax Slab Rates (Financial Year 2018–19/Assessment Year 2019–2020)

Note: Tax relief under Section 87A of Income Tax Act – in case of a resident taxpayer having total income not exceeding Rs 350,000 in financial year 2018–19, income tax chargeable on the income or Rs 2,500, whichever is less

Note: Tax relief under Section 87A of Income Tax Act – in case of a resident taxpayer having total income not exceeding Rs 350,000 in financial year 2018–19, income tax chargeable on the income or Rs 2,500, whichever is less

Surcharge

  • It is 10 per cent of the income tax, where taxable income of an individual is Rs 5,000,001 to 10,000,000.

However, the amount of income tax and surcharge shall not increase the amount of income tax payable on a taxable income of Rs 50 lakh by more than the amount of increase in taxable income.

  • It is 15 per cent of the income tax, where taxable income of an individual is Rs 10,000,001 or above.

However, the amount of income tax and surcharge shall not increase the amount of income tax payable on a taxable income of Rs 1 crore by more than the amount of increase in taxable income.

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