LTCG
tax on equity mutual funds and stocks, dividend distribution tax on
mutual funds and introduction of standard deduction on income tax are
among the few of the tax changes from 1 April
From
long-term capital gains tax on equity investments to higher interest
income exemption for senior citizens to introduction of dividend
distribution tax on dividend received from equity mutual funds, this
year saw many changes in income tax rules. Many of these were introduced
as part of Budget 2018-19. This year also saw the introduction of
standard deduction for salaried employees. Senior citizens were also
allowed higher deduction on health insurance premiums.
Here are some of the important changes in income tax rules:
1) Long-term capital gains tax on equities
From 1 April 2018, a
new long-term capital gains (LTCG)
tax regime on equity instruments - listed shares or equity-oriented
mutual funds - came into effect. Earlier such gains on equity were
exempt from tax. Now investors have to pay 10% tax on gains exceeding Rs
1 lakh a year. Equity holding beyond a year is considered long term.
However, to soften the blow, the government introduced a grandfathering
provision, which means that if listed shares or equity funds were
acquired before February 1, there would be no levy of long-term capital
gains tax.
2) Dividend distribution tax on dividends from equity mutual funds
Dividends
distributed by equity mutual funds, which were earlier tax-free,
attracted tax at the rate of 10%. Remember that dividends from equity
mutual funds are tax-free in the hands of investors. But dividends from
equity mutual funds are paid after deducting a
dividend distribution tax (DDT) of 11.648% (including cess), which reduces the in-hand return for investors.
3) Higher interest income exemption for senior citizens
For
senior citizens,
the government increased interest income exemption limit on bank and
post office deposits to Rs 50,000, from Rs 10,000 earlier. In addition,
for senior citizens, tax deduction at source (TDS) will not be triggered
if interest income is up to Rs 50,000.
4) Rs. 40,000 standard deduction
Standard deduction was
introduced in this year’s budget in lieu of the earlier exemption in
respect of transport allowance and reimbursement of miscellaneous
medical expenses. Unlike other deductions and exemptions, to claim
standard deduction, one need not provide any documents and proof. A
salaried individual or pensioner can claim standard deduction up to Rs
40,000 from his/her income.
5) Higher cess
The government raised the cess on income tax to 4% from 3% for individual taxpayers on the amount of income tax payable.
6) Tax exemption on NPS for the self-employed
Employees
contributing to the National Pension System (NPS) were allowed to
withdraw up to 40% of the total corpus without any tax at the time of
maturity or closure of the account. The same benefit has now been
extended to self-employed subscribers.
7) Lock-in period of 54EC bonds increased
Long-term
profits from real estate sales are tax-free if invested in specified
bonds under Section 54EC. Till last year, you had to stay invested in
the 54EC bonds for at least three years to enjoy the tax break, but from
this year, your money will be locked in for five years.
8) Higher deduction on health insurance premiums
Senior
citizens now can avail deduction of up to Rs 50,000 for health
insurance premium under Section 80D. Earlier the limit was Rs 30,000.
Also, the deduction available for payment towards medical treatment of
specified disease has been hiked to Rs 1 lakh for senior citizens.
9) More tax benefits on single premium health insurance policies
In
cases where premium for health insurance for multiple years has been
paid in one year, the deduction shall be allowed on proportionate basis
for the number for years for which the benefit of health insurance is
provided.
10) Govt brings NPS on a par with PF, makes it tax-free
The
Union Cabinet recently approved many changes in the NPS to make it more
attractive for investors. NPS will be made fully tax-free on
withdrawal. Subscribers will get full tax exemption on the 60% of the
corpus that an investor is allowed to withdraw on maturity. This will
help bring the NPS on a par with other tax-saving instruments like the
PPF where withdrawals are fully tax-free. This is likely to be effective
from
April 1 next year. (Read: NPS rule changes explained in 10 points)