The Finance Minister chose not to tinker around with tax slabs in this budget, but proposed quite a few changes that would go on to impact the personal finances of the common man. Here are the six most relevant ones, in a nutshell.
Exemption Of Fixed Deposit Income Of Up To Rs 50,000 For Senior Citizens
What this essentially means is that senior citizens can book fixed deposits of up to Rs 7 lakh (at the current rates of interest) without having to pay taxes on interest earned from them. This is bound to drive up the attractiveness of fixed deposits in the eyes of senior citizens, and may lead to a small exodus from debt mutual funds, which have been having a bit of a hard time of late. Clearly, this is a welcome move for pensioners.
Dividend Distribution Tax And Long-Term Capital Gains Tax Of 10 Per Cent On Equity Oriented Mutual Funds
It has been proposed to tax long term capital gains on equity and equity oriented mutual funds at 10 per cent. At present, such profits are deemed tax free. Short term capital gains will continue to be taxed at 15 per cent. This move reduces the attractiveness of equity oriented mutual funds to an extent. Ideally, it should have been coupled with the option to hold on for more than five years and realise a tax-free profit; thereby driving investor behaviour in the right direction.
Standard Deduction Of Rs 40,000 For Salaried Employees
It has been proposed to do away with the medical allowance of Rs 15,000 and the transport allowance of Rs 19,200 per fiscal, and replace it with a flat “standard deduction” of Rs 40,000. This represents a very marginal saving of up to Rs 1,800 for an income earner in the highest marginal tax bracket. It does away the cumbersome task of having to put together bills and records in order to claim deductions, though!
Cess On Income Tax To Be Increased From 3 per cent To 4 per cent
The Finance Minister has proposed an increase in the rate of cess on income taxes, from 3 per cent to 4 per cent. This would lead to a slightly higher income tax outgo for you. Depending upon your marginal tax bracket, your net income tax payable for the year would rise marginally by somewhere between 0.05 per cent to 0.25 per cent. Obviously, this move would impact large tax payers a lot more. For instance, an executive earning Rs 1 crore per annum would end up having to pay nearly Rs 29,000 more in direct taxes, as a result of this move.
Disinvestment Target For 2018-19 Set At Rs 80,000 Crore
Last year’s disinvestment target of Rs 72,000 Crore has been hiked to Rs 80,000 Crore this year. Resultantly, investors may expect another flurry of ETF’s (Exchange Traded Funds) to hit the market, with most of them focused on Maharatna and Miniratna companies. Investors need to be careful while deploying moneys into such ETF’s at such stretched valuations, especially considering that ETF liquidity still remains mildly suspect!
Health Insurance Benefit For Senior Citizens To Be Raised To Rs 50,000
A welcome move, when you consider that senior citizens should be encouraged to take up policies with relatively high sum insured values. A 2-adult floater plan with an Rs 20 lakh sum insured where the eldest family member is 65 years old, is likely to cost anything from 60,000 to 75,000 per annum. The raised deduction limit will encourage more senior citizens to take up an adequate quantum of medical coverage.