5 New Tax Changes and Impacts Post Budget 2018

We've set various expectation from the budget 2018 for common man but couldn't observed the expectaion into the realty. If you look budget you might be thinking that there is no change in your taxation in 2018, as there is no change in Income Tax Slab and Rate. You may end up in wrong assumption as Mr. Arun Jetly (Finance Minister) has introduced 10 new tax changes which will impact your taxatino in 2018. 

These changes may ask to think twice due to its unfavorable nature. Lets look at the changes below and its impact post Budget 2018.

Taxation changes in Budget 2018

1. Cess on Income Tax hiked to 4%

Cess on Income Tax is increased by 1% and now we have to pay 4% Education Cess on all taxable income tax. This change will increase your tax liability. ie. If you are from 20% slab your tax liability will increase by Rs.1125. Similarly, if you are from tax slab of 30% your tax liability will go up by Rs.2625. 

2. Standard Deduction

Standard deduction is the portion of income that is not subject to tax and that can be used to reduce a taxpayer's tax bill. In the recent budget 2018, finance minister proposed to provide a standard deduction of Rs.40000 from salary income to employees. 

With this standard deduction now salaried people can enjoy tax-free income up to 2.9 Lakh. You might be thinking that Rs.40000 is a good amount and it will give a lot of tax saving. However, your assumption is wrong. 

Don't expect much tax saving as with our example you can see there is only saving of Rs. 117 if your income is INR 500,000/- 

3. Removal of Medical and Transport Allowance

Another big tax change in the budget 2018 is removal of medical and transport allowance from the tax exemption. You may be aware that earlier salaried people were allowed to claim Rs.19200 towards transport and Rs.15000 towards medical reimbursement. So, total benefit amount was Rs.34200. In lieu of this amount, new standard deduction of Rs.40000 is introduced.

4. Reintroduction of LTCG @10 % on Stock Market and Mutual Funds

LTCG tax on the stock market and mutual fund investment in reintroduced in budget 2018.
With is reintroduction of the long term capital gain any person who sells shares after April 1, 2018, will pay a long-term capital gains tax at the rate of 10 percent on gains of more than Rs 1 lakh. For such shares, the cost of acquisition will be price as on Jan. 31, 2018.

If a person who has held shares for more than one year sells them before March 31, 2018, there will be no long-term capital gains tax.
No changes are made in short-term capital gain tax. Short-term capital gain would be taxed @15%.  But no worry with our recommandation for the best blue chip stocks and top performing mutual funds you can earn better than the traditional fixed deposits. 

Lets try to calculate LTCG for share which you might be holding from past 1 year.

Suppose you sell shares after March,31,2018 you need to pay LTCG. LTCG is applicable beyond 1 Lakh. 
  • This means no tax is payable on profit amount up to 1 lakh per annum. 
  • Any amount beyond 1 Lakh will be taxed @10%. 
Suppose your long-term capital gain from equity and the stock market is 1.5 Lakh in a year. You need to pay tax on Rs.50000.

How you can calculate Long-term Capital gain tax earned in Stock Market?

In order to calculate LTCG on stock market investment, you need to consider FMV (Fair Market Value). FMV for existing holding will be taken as on Jan,31,2018. FMV concept is a similar concept which is being used in ESOP for the tax calculation.

If you have purchased a share of Rs.100 and holding it since past 1 year or above FMV of these shares on Jan,31,2018 is Rs.160. Suppose you sell it for Rs.200 after April,1,2018. You need to consider Rs.160 as a cost of acquisition for tax purpose and not the actual cost viz. Rs. 100. LTCG, in this case, would be calculated as follows.

LTCG = Rs.200 – Rs.160 = Rs.40

The escape route is either to sell equity and mutual fund investment before 31st March 2018 or accept and pay LTCG.

5. Divident Distribution Tax on Equity Mutual Funds

New Dividend distribution tax is introduced on Equity based mutual funds. Equity based mutual fund is those fund whos investment in equity is more than 65% of the total capital. The rate of DDT would be 10%. DDT is applicable for all dividend mutual funds. Although DDT will be paid by mutual fund house and not by investors; it will impact adversely to the investor as the company will load this tax and pay less dividend to investors.

Hope you've now idea about the major taxation changes proposed in the Budget 2018. 


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