With the first month of the new financial year almost coming to an end, it is a good time to start reviewing your tax-saving plans. And to do so, you must know the new tax rules that are effective from financial year 2018-2019.
In Budget this year, the government introduced, rather reintroduced, standard deduction of Rs 40,000 on taxable income. This standard deduction is in lieu of the annual transport allowance of Rs 19,200 (Rs 1,600 per month) and the annual medical reimbursement of Rs 15,000. The effective additional exemption stands at Rs 5,800 annually.
The deduction will be made directly from the salary, thereby, doing away with the cumbersome process of submitting bills. A tax-paying pensioner is also entitled to claim a standard deduction of Rs 40,000.
All about taxes and investments
The Budget raised the education cess on income tax from 3 per cent to 4 per cent. Earlier, the cess included 2 per cent education cess and 1 per cent secondary and higher education cess. The hike in education cess means one has to pay more tax.
Non-Salaried Get NPS Exemption
In good news for non-salaried individuals, contribution up to 20 per cent of the gross income to the pension account is eligible for deduction under Section 80 CCD (1) of the Income Tax Act, 1961. Earlier, the maximum deduction allowed to non-salaried individuals was capped at 10 per cent of the gross income.
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This brings a parity between salaried and non-salaried individuals and allows greater tax savings on higher contribution to NPS.
Additional tax deduction on investment up to Rs 50,000 under Section 80CCD (1B) continues for salaried and non-salaried subscribers of NPS.
Exemptions for Senior Citizens
According to Budget 2018, the tax exemption on income from interest from bank deposits and post offices has been increased from Rs 10,000 to Rs 50,000. The deduction limit for health insurance premium or medical expenditure has been raised from Rs 30,000 to Rs 50,000 under Section 80D.
Further, deduction limit for medical expenditure on critical illness is now Rs 1 lakh for all senior citizens under Section 80DDB. Earlier, the limit was Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens.
Long-term Capital Gains Tax on Stocks
This year’s Budget saw re-introduction of the long-term capital gains (LTCG) tax on stocks. Investors will have to pay 10 per cent on profit exceeding Rs 1 lakh from sale of shares or equity-oriented mutual funds held for more than a year. All gains up to January 31, 2018 have been exempted.