Union Budget 2018 – Impact on Salaried & Self-employed

Economy 20189429 views

Highlights

  • Income Tax slabs remain unchanged
  • Standard Deduction of ₹40,000 for salaried and pensioners
  • PAN mandatory for transactions worth ₹2.5 lakh and beyond.

Union Budget 2018 Tax Announcements

  • Personal income tax rates left unchanged
  • Standard deduction of ₹40,000 for salaried and pensioners
  • Govt makes PAN mandatory for any entity entering into a financial transaction of ₹2.5 lakh or more.
  • Long term Capital gain exemption under section 10(38) in respect of listed STT paid shares being withdrawn. However, capital gain up to 31.1.2018 shall not be taxed as cost of acquisition will be taken as Fair Market Value as on 31.1.2018.
  • Tax on long term capital Gain exceeding ₹1 lakh will be 10% under Section 112A. Further such tax will be liable for TDS.
  • 15% capital gain tax on shares held up to 1 year
  • 18.7% growth in direct taxes collection till Jan, 2018
  • Corporate tax of up to 25% for companies that reported a turnover of 250 Crore in 2015-16. 99% MSMEs to be taxed at 25%.
  • 30% tax rate for companies that reported a turnover over ₹250 crore in FY 2015-16.
  • Central Board of Excise and Customs renamed as Central Board of Indirect Taxes and Customs
  • Tax Exemption on interest income from bank and postal deposits raised from ₹10,000 to ₹50,000 (For Senior Citizens)
  • Critical illness deduction for senior citizens
  • Exemption limits increased to ₹50K
  • Health insurance exemption, critical illness exemption for SC
  • Raise in deduction up to ₹80K
  • Provision of Section 43CA, 50C and 56(2)(x) being amended to allow 5%  of sale consideration in variation vis a vis stamp duty value. On account of location, disadvantage etc.
  • Provision of section 40(ia) and 40A(3) and 40A(3A)are being made applicable to Charitable Trust. Hence expenditure incurred without deduction of tax and in cash will not be eligible as application of income under section 10(23C) and section 11(1)(a).
  • Marked to market loss computed as per ICDS to be allowed under section 36.
  • Gain or loss in Foreign Exchange as per ICDS to be allowed under new section 43AA.
  • Construction Contract income to be computed on percentage completion method as per ICDS.
  • Valuation of Inventory including Securities  to be as per ICDS.
  • Interest on compensation, enhanced compensation. Claim or enhancement claim and subsidy, incentives to be taxed in the year of receipt only as per new Section 145B.
  • Conversion of stock in trade to capital asset to be charged as business income in the year of conversion on Fair Market value on the date of conversion.
  • 54EC benefit of investment in Bonds to be restricted to Capital gain on land and building only. Further period of holding being increased from 3 years to 5 years.
  • PAN to be obtained by all entities including HUF other than individuals in case aggregate of financial transaction in a year is ₹2,50,000 or more. All directors, partners, members of such entities also to obtain PAN.
  • All companies irrespective of income to file return and in case it is not filed, such companies will be liable for prosecution irrespective of the fact weather it has tax liability of ₹3,000 or not.
  • Assessments to be E assessment under new section 143(3A)
  • Deemed dividend to be taxed in the hands of the company itself as Dividend Distribution of tax @ 30%.
  • Penalty for non filing financial return as required under section 285BA being increased to  ₹500 per day.
  • Post harvest tax incentive proposed-100% deduction having a turnover of ₹100 crore
  • Rebate for agriculture-based companies with ₹100 Cr
  • Custom duty on mobile phones increased to 20% from 15%.
  • No more education cess on imported goods. It will be replaced by social welfare surcharge of 10%.
  • ₹5 lakh medical reimbursement under National Health Insurance Scheme for 10 crore vulnerable families.

Budget 2018 for Salaried Employees

So finally the wait is over, Finance Minister Arun Jaitley has opened his bag and has presented the fifth and last Union Budget 2018-2019 under the Modi Government. So, without wasting any time further, let’s just come to the point straight and give you the highlights on budget for salaried.

₹40,000 Standard Deduction

The comeback of standard deduction is finally here as announced by the finance Minister. He announced a standard deduction of ₹40,000 for salaried, which means the same is deducted from the gross income of salaried on which the tax will further be calculated. The standard deduction will reduce the tax burden of salaried employees. The reintroduction of standard deduction of ₹40,000  will actually help the salaried individuals to get some parity just like businessmen and other self-employed professionals, who can claim various expenses. The concept of standard deduction is not new in India, the same was existed till the assessment year, 2005-2006, allowing a flat deduction from the income of a salaried towards the expenses an employee would incur in relation to his/her employment.

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So, here’s a look at the calculations for Salaried Class on the income tax front after taking into account the standard deduction, as Jaitley has decided to spread the cheer.

IncomeTax
Up to ₹2.5 lakhNIL
₹2,50,001 to ₹5 lakh5%
₹500,001 to ₹10 lakh20%
Above ₹10 lakh30%
Standard deduction of ₹40,000 is allowed

Scenario I – Income Tax Structure for Salaried with Annual Income of up to ₹5 Lakh

Income-₹5 Lakh
Standard Deduction-₹40,000
Gross Value after standard deduction-₹4.6 Lakh
Up to₹2.5 lakh-NIL
From₹2.5 Lakh-₹4.6 lakh @5% = ₹10,500(5% of ₹ 2.1 lakh)

So, the total tax liability comes out to be ₹10,500. Without standard deduction the tax liability would have been up to₹2,500.

Scenario II – Income Tax Structure for Salaried with Annual Income of up to ₹ 5 Lakh-10 Lakh

Income-₹8 Lakh (assumed)
Standard Deduction-₹40,000
Gross Value after standard deduction-₹7.6 Lakh
Up to₹2.5 lakh-NIL
From₹2.5 Lakh-₹5 lakh @ 5%=₹12,500(5% of₹2.5 lakh)
From₹5 Lakh-₹7.6 @ 20% =₹52,000 (20% of₹2.6 Lakh)

So, the total tax liability comes out to be₹64,500. Without standard deduction the tax liability would have been up to₹72,500.

Scenario III – Income Tax Structure for Salaried with Annual Income above₹10 Lakh

Income-₹12 Lakh (assumed)
Standard Deduction-₹40,000
Gross Value after standard deduction-₹11.6 Lakh
Up to₹2.5 lakh-NIL
From₹2.5 Lakh-₹5 lakh @ 5%=₹12,500(5% of₹2.5 lakh)
From₹5 Lakh-₹10 @ 20% =₹1,00,000 (20% of₹5 Lakh)
From₹10 Lakh-₹11.6 Lakh @ 30%=₹48,000(30% of₹1.6 Lakh)

So, the total tax liability comes out to be₹1,60,500. Without standard deduction the tax liability would have been up to₹1,72,500.

Income Tax Structure for Self-employed

Not only the salaried, even self-employed pays income tax to the government. And like salaried, self-employed businessmen and professionals had also expected exemption and slab change in their income tax structure. However, the Budget 2018 has not come with any new tax announcements for self-employed. So, the old tax structure is going to continue. The tax structure has been explained in the tables below. Take a look-

Income Tax Structure for Self-employed with Annual Income of up to ₹5 Lakh

CategoryIncome Tax Slabs
General Category (For Those Up to 60 Years)Up to 2,50,000 - NIL

₹2,50,000- 5,00,000 - 10% of the amount above 2,50,000
Senior Citizens (From 60-80 Years)Up to ₹3,00,000 - NIL

₹3,00,000-5,00,000 - 10% of the amount above ₹3,00,000
Super Senior Citizens (Above 80 Years)Up to ₹5,00,000 - NIL

Income Tax Structure for Self-employed with Annual Income of ₹5-10 Lakh

CategoryIncome Tax Slabs
General Category (For Those Up to 60 Years)₹25,000 + 20% of the amount above ₹2,50,000
Senior Citizens (From 60-80 Years)₹20,000 + 20% of the amount above ₹5,00,000
Super Senior Citizens (Above 80 Years)20% of the amount above ₹5,00,000

Income Tax Structure for Self-employed with Annual Income of Above ₹10 Lakh

CategoryIncome Tax Slabs
General Category (For Those Up to 60 Years)₹1,25,000 + 30% of the amount above ₹10,00,000
Senior Citizens (From 60-80 Years)₹1,20,000 + 30% of the amount above ₹10,00,000
Super Senior Citizens (Above 80 Years)₹1,20,000 + 30% of the amount above₹10,00,000

Impact of Union Budget 2018 on Personal Finance Segment

Responding to the clamour of taxpayers, the Finance Minister announced a standard deduction of ₹40,000 for salaried and pensioners. The standard deduction will help cut down the tax liability of assesses. However, the government maintained a status quo on the income tax rates. This may come as a slight disappointment as many expected a hike in the income tax exemption limit from the existing level of ₹2.5 lakh to ₹3 lakh.

Senior Citizens to Laugh All the Way to the Bank

The announcement of hike in tax deduction on interest income on bank and postal deposits from ₹10,000 to ₹50,000 for senior citizens is likely to give a cushion to the old-age people.

Long-term Capital Gain Tax Announcement Deals a Blow to Equity Investors

As many feared, the government came with an announcement to tax long-term capital gains exceeding ₹1 lakh at 10%. As soon as this announcement came, the 30-share benchmark index sensex loses 300 points.

PAN Mandatory for Transactions of ₹2.5 Lakh and Above

What grabs more attention is the announcement of PAN being mandatory for transactions worth ₹2.5 lakh and above.

Govt Sets Mudra Loan Target of ₹3 Lakh Crore for FY 2018-19

Mudra Yojana, which was launched in April, 2015, has sanctioned loans worth ₹4.6 lakh crore for 10.38 Crore Mudra accounts. Interestingly, women account for 76% of these accounts, while SCs, STs and OBCs get a share of more than 50%. As the scheme has performed excellently by exceeding the targets in all the years post its launch, the government has proposed to set a lending target of 3 lakh crore under Mudra Yojana for FY 2018-19. This will lead to a birth of new startups in the country, creating massive opportunities for employment, particularly in labour-intensive industries like textile and footwear.

Impact of Union Budget 2018 on Real Estate

In the Union Budget 2018, Finance Minister Arun Jaitley announced a much needed breakthrough to the real estate industry. The announcements are likely to change the real estate, especially the government initiated ‘Housing for All by 2022’ project, in a positive manner. Let us look at the announcements made by the Finance Minister:

  • An allocation of ₹27,5000 crore for affordable housing plans in FY19.
  • 1 crore houses to be built in the rural areas.
  • Affordable fund for housing purposes to be set up under National Housing Bank.

These announcements are likely to aid the growth of housing sector especially the affordable housing segment. The announcement of building 1 crore houses under PMAY will help the homeless rural population to get a shelter.  

Impact of Union Budget 2018 on Agriculture

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In a bid to give a big relief to farmers, Finance Minister Arun Jaitley has announced numerous agricultural reforms, ensuring to double the income of the farmers by 2022. The budget of 2018 has outlined various schemes to promote agriculture, organic farming, animal husbandry and fisheries, making a focus on strengthening the agricultural and rural economy. Niti Ayog, in collaboration with Central and State Governments will work on a full-proof mechanism, ensuring that farmers will get the adequate price for their produce. He has announced the fixing minimum support price (MSP) of Kharif crops at least 50% higher than the cost of production, while increasing the farm credit target for the next fiscal by 10% to ₹11 lakh crore. He also proposed the tax incentives to boost the post-harvest activities. The budget also includes the 100% deduction to the Companies registered as Farmer Producer Companies while having an annual turnover of up to ₹100 crores with respect to their profit derived from such activities for a 5-year period from FY-2018-19.

Moreover, to boost the agricultural growth further, the Government will set up fisheries and aqua culture infra fund and animal husbandry infra fund with an outlay of ₹10,000 crore. He also added that Government will develop 22,000 Gramin agricultural markets and will launch operation Green by allocating ₹500 crore for the same. Moreover, if we look at the statistics, the agriculture sector gives employment to almost 50% of the total workforce in India and gives 17%-18% share to the country’s GDP. And, with today’s Union Budget announcement, focusing on generating a higher income for farmers along with generating gainful employment on farms, it would not be wrong to say that it is a win-win situation for the agriculture sector and will work in the favour of many.

A Cheat Sheet on Union Budget 2018 Expectations (updated on 31st Jan,2018)

Everyone is anxious to know what the government will bring on the tax front in the Union Budget 2018, slated to take place on 1st February. It’s not a surprise that the whole of India listens to the Finance Minister’s budget speech word-by-word, every year. And often, people keep their ears to what the minister says on income tax, corporate tax and other levies.

Now as Goods and Services Tax (GST) has hit India’s tax landscape, ears will be even more tuned in the upcoming budget. Many are yet to come to grips with the new indirect tax regime, resulting in utmost chaos among the business enterprises and the public in general. So keep your fingers crossed as the government could make some important announcements regarding GST, launched on July 1, 2017, in the upcoming budget.

Like the previous years, experts are sending their tax proposals to the government desk this time around as well. Of the many proposals, we have picked a few, which if accepted, can comfort the common man against the sword of belligerent tax regime and help them generate the much-needed savings to stay afloat in the times of inflation. Let’s check out those proposals and see how they can steady the ship of a common man finding it hard to sail through the turbulent tax waves.

How About Charging Tax on Net as Opposed to Gross for Salaried in the Present Times?

Sounds interesting, isn’t it? Yes, the salaried class pays tax on the gross annual proceeds, much unlike many who are paying tax on their net income. The tax charged on the net income, without a doubt, would be far lesser than the levies on gross proceeds. This amendment will create a level playing field among the taxpayers in India.

Income Tax Rates for FY 2017-18

Income SlabTax Rate
Up to ₹2,50,000NIL
From ₹2,50,000-5,00,0005%
From ₹5,00,000-10,00,00020%
Above ₹10,00,00030%

For example- Your gross and net salary in a year amount to ₹6 lakhs and ₹5 lakhs, respectively.

Tax Treatment as per Gross Income

Gross Annual Income = ₹6,00,000

Up to ₹2.5 lakh = NIL

From ₹2,50,000-5,00,000 = ₹12,500 (5% of 2,50,000)

From ₹5,00,000-6,00,000 = ₹20,000 (20% of 1,00,000)

Total Tax Liability in a Year = ₹32,500

Tax Treatment as per Net Income

Net Annual Income = 5,00,000

Up to ₹2.5 lakh = NIL

From ₹2,50,000-5,00,000 = ₹12,500 (5% of ₹2,50,000)

Total Tax Liability in a Year = ₹12,500

So, you can reduce your tax liability to the tune of ₹20,000 if the government announces net income-based tax treatment for the salaried class.

Note – The actual amount can vary depending on the change in tax slabs.

Tax-free Limit of NPS Withdrawal Needs to be Hiked

The government had, in Budget 2016, announced to make withdrawals from National Pension Scheme (NPS) tax-free to the extent of 40% of the overall corpus at the time of maturity, thereby making it more tax-friendly.

However, the withdrawals can be made up to 60% of the total accumulated corpus at the age of 60 years. The remaining portion gets converted into an annuity, generating periodic income or pension for the subscribers.

Even with such a move, NPS has failed to achieve the desired results. So, the clamour for hiking the tax-free limit from the existing 40% to 60% or more is getting louder.

Tax Deduction Limits Must Enhance for NPS Contribution Made by Self-employed

A self-employed has to contend with a tax deduction limit on contributions made to the NPS. In the last year’s budget, the limit was enhanced from 10% to 20% of gross income to bring both the self-employed and salaried taxpayers at par with each other. However, the former’s tax deduction is capped at a maximum of ₹1.5 lakh under Section 80CCE. In contrast, salaried can claim a deduction for a maximum of 10% of his income under Section 80CCD(1) as well as a deduction of employer contribution of up to 10% of salary under Section 80CCD(2). The tax deduction cap for self-employed must get raised to keep them at the same level to that of salaried. It would be better to raise the tax deduction limit for self-employed to ₹5 lakh so that they would like to park a greater sum in the NPS.

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Life Insurance Plans Must Get Moved to the Lowest 5% GST Slab

Life insurance plans have become costlier in the wake of GST becoming a reality. Financial products such as life insurance policies come under the second most highest GST slab of 18%. Policyholders were paying the erstwhile service tax at the rate of 15%.

Life insurance can be broadly classified into the following types-

  • Term Policy
  • Single Annuity Plan
  • Endowment Policy
  • Unit Linked Insurance Plan (ULIP)

A life insurance policyholder has to pay 18% GST over the premium payable. The tax treatment, however, differs according to the policies stated above. If the government does bring down the GST incidence on these policies from 18% to the lowest 5% slab, it will reduce the life insurance premiums considerably.

Policy PremiumsPresent Incidence of GST on Premium (In %) Proposed Incidence of GST on Premium (In %)
Term Policy Premium185
Single Annuity Premium1.80.5
Endowment Policy

First Year Premium


Renewal Premium



4.5% (18% of 25% of premium amount)


2.25 (18% of 12.5% of premium portion of the following years)



1.25


0.625
ULIP Premium185

Assume the annual premium for each of the policies to be ₹10,000 excluding GST. Then, how will the premium look like after the incidence of GST, both as per the present slab of 18% and the proposed 5%? Check that out in the table below.

Policy PremiumsTax to be Paid Over The Premium Amount at 18% (In ₹) Total Premium to be Paid Post 18% GST (In ₹) Tax to be Paid Over The Premium Amount at 5% (In ₹) Total Premium to be Paid Post 5% GST (In ₹)
Term Policy Premium18001180050010500
Single Annuity Premium180101805010050
ULIP Premium18001180050010500
Endowment Policy

First Year Premium

Renewal Premium




450

225






10,450

10,225




125

62.50




10,125

10,062.50

Increase in Duration of Tax Deduction on Education Loan from the Existing 8 Years

The cost of higher studies has grown manifold up across the domestic and international educational institutions. For instance – IIM Ahmedabad, the pinnacle of B-schools in India, is likely to charge ₹18 lakh for a 2-year management course in 2018, up 400% from the 2007 batch. Assume the fee increases 10% every year. In that case, the fee would go up to 35 lakh (approx.) by 2025.

Currently, the 4-year engineering costs ₹8-10 lakh, which is likely to double to ₹16-20 lakh by 2025. The cost could go well beyond ₹30 lakh by 2030.

Such towering costs prompt aspiring students to avail an education loan from lenders, including banks and non-banking finance companies (NBFCs), across the country. The interest rate on education loans can be anywhere between 11%-13.50% per annum. Lenders provide such loans for a maximum tenure of 10-15 years, depending on the quantum of finance being extended to the students. Post the completion of the studies, students start repaying the loan via equated monthly installments (EMIs), combining both principal and interest repayment portions.

Yes, the tax benefits are applicable to education loans availed from a qualified lender. But it’s for a maximum of 8 years only. As far as the applicability of tax deduction is concerned, it’s only on the interest component and not the principal portion of a loan.

Experts are throwing their weight on the tax deduction for the entire period of an education loan, just like a home loan. If the government does accept the proposal, it would bring a smile on the face of many budding professionals. Take a look at the example below to know the benefits.

Example – Shalini Gupta wants to pursue a 2-year MBA at a reputed institute charging a fee of ₹12 lakh. She applies for an education loan at an XYZ bank, which in turn, offered the credit at an interest rate of 12.50% per annum for a tenure of 13 years. Let’s compare the tax benefits of 8 years and the whole tenure (if brought into effect) in the table below.

Interest Rate In % p.a.)Tenure (In Years)Monthly EMI (In ₹)Total Amount of EMI Paid in a Year (In ₹)Interest to be Paid Each Year (In ₹)Tax Deduction Allowed Each Year As Per the Current Norm (In ₹)Tax Deduction Allowed Each Year As Per the Proposed Norm (In ₹)
12.51152241,82,6881,41,8001,41,8001,41,800
12.52152241,82,6881,36,6141,36,6141,36,614
12.53152241,82,6881,30,7711,30,7711,30,771
12.54152241,82,6881,24,1861,24,1861,24,186
12.55152241,82,6881,16,7671,16,7671,16,767
12.56152241,82,6881,08,4061,08,4061,08,406
12.57152241,82,688989859898598985
12.58152241,82,688883708837088370
12.59152241,82,68876408-76408
12.510152241,82,68862929-62929
12.511152241,82,68847741-47741
12.512152241,82,68830626-30626
12.513152241,82,68811341-11341
Total = 9,45,899Total = 11,74,944

If the government announces tax benefits for the entire loan tenure in the upcoming budget, Shalini can claim an additional tax deduction of ₹2,29,045 (11,74,944-9,45,899) over the course of her debt.

Note – The eligible tax deduction is reduced from your gross annual income each year to arrive at the taxable income.

Personal Loan Interest Rates October 2018
Bajaj Finserv10.99% - 16.00%
Fullerton India14.00% - 33.00%
HDFC Bank11.25% - 21.50%
ICICI Bank10.99% - 18.40%
IndusInd Bank10.99% - 16.00%
Kotak Bank10.99% - 20.99%
RBL13.00% - 18.00%
Standard Chartered Bank11.50% - 14.50%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates October 2018
State Bank of India/SBI8.70% - 9.25%
HDFC8.80% - 9.60%
Bank of Baroda8.55% - 9.55%
LIC Housing8.70% - 9.05%
PNB Housing Finance9.00% - 13.00%
ICICI Bank8.85% - 9.10%
Axis Bank8.80% - 9.05%
Citibank8.90% - 9.65%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank8.75%
DHFL9.05% - 9.95%
Reliance Home Finance8.75% - 10.00%
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