Budget 2018 -19 - Income Tax

The Hon'ble Finance Minister announced various schemes and subsidies in his 2018 Budget speech. Some of the major areas of focus in the Budget 2018 are agriculture and healthcare.

Click here for a complete analysis of the 2018-19 Budget. In this article, we look at the major changes to Income Tax announced in the Budget 2018-19. Some of the he highlights of Budget 2018-2019 are as follows :

No Change in the income tax exemption limit, Cess hiked from 3% to 4% for taxpayers.
Salaried tax payers and pensioners to get a standard deduction of ₹ 40,000 in lieu of transport allowance and other medical expenses.
For critical illness, the deduction has increased to ₹ 1,00,000.
All senior citizens will now be able to claim benefit of a deduction of ₹ 50,000 for any medical insurance.
For senior citizens, the government has announced a number of measures that will help them to ease their tax burden:
- Exemption of interest income on deposits with banks and post offices to be increased from ₹ 10,000 to ₹ 50,000
- Hike in deduction limit for health insurance premium from ₹ 30,000 to ₹ 50,000 under section 80D.
- TDS not required to be deducted under section 194A and benefit also available for interest from all fixed deposit schemes and recurring deposit schemes.
- Increase in deduction limit for medical expenditure for certain critical illness from Rs. 60,000 (in case of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to Rs. 1 lakh for all senior citizens, under section 80DDB.
Education cess now to be called as Health and Education cess effective rate increased to 4% from 3%.
Tax on Long Term Capital Gains exceeding Rs. 1 lakh at the rate of 10 percent, without allowing any indexation benefit.

Standard Deduction Reintroduced for Salaried Individuals:

According to 2018 Budget, salaried individuals will get a standard deduction of ₹ 40,000 on income in place of the present exemption allowed for transport allowance (₹ 19,200 per year) and reimbursement of miscellaneous medical expenses (₹ 15,000 per year), which is a net difference of ₹ 5,800 per year. Standard deduction allows for a flat deduction from income of a salaried individual towards expenses an employee would incur in relation to his or her employment. No proof is required. Standard deduction, which was earlier available to the salaried individuals on their taxable income, was abolished with effect from assessment year 2006-07. Both salaried employees and pensioners would benefit from this proposal.

Cess hiked from 3% to 4% for taxpayers:

The proposed Budget has not made any changes in the Income tax rates and slab. However, the cess was hiked from 3 % to 4 % across the board of taxpayers.

Resident individual below the age of 60 years:

Net Income Range	Income Tax rates and cess
Upto Rs.2,50,000	NIL
Rs.2,50,001 to Rs.5,00,000	5% of (total income minus Rs.2,50,000) +4% CESS
Rs. 5,00,000 to Rs. 10,00,000	Rs.12,500 + 20% of (total income minus Rs. 5,00,000) + 4% CESS
Rs.10,00,001 and above	Rs.1,12,500 + 30% of (total income minus Rs.10,00,000)+4% CESS

Here is an example for the above Income tax slab and the increased Cess:

Sources of income	As per 2017-2018 Structure	As per 2018-2019 Structure
Taxable Income	4,50,000	4,50,000
Standard Deduction	0	40,000
Transport allowance	19,200	0
Medical reimbursement	15,000	0
Net Taxable Income	4,15,800	4,10,000
Tax	8,290	8,000
Cess	248.7	320
Total Tax to be paid	8538.7	8310
Savings	-	218.7

The above example illustrates about the employee income details and the tax calculation for both the Financial Year(2017-18) and the Assessment Year(2018-19). This Section provides for income tax rebate to individuals earning income below the specified limit. It is being provided to reduce the tax burden of lower income bracket. The rebate of Rs.2500 can be claimed if the taxpayers satisfy both the following conditions:

If he/she is a Resident Individual
If his/her Total Income Less Deductions(under Section 80) is equal to or less than Rs.3,50,000.

According to the proposed structure of the income tax slab the Standard deduction of Rs.40,000 will be deducted and the Cess will be calculated for 4%.

Resident individual who is of age of 60 years or above but less than 80 years

Net Income Range	Income Tax rates and cess
Upto Rs.3,00,000	NIL
Rs.3,00,001 to Rs.5,00,000	5% of (total income minus Rs.3,00,000) +4% CESS
Rs. 5,00,001 to Rs. 10,00,000	Rs.10,000+ 20% of (total income minus Rs. 5,00,000) + 4% CESS
Rs.10,00,001 and above	Rs.1,10,000+ 30% of (total income minus Rs.10,00,000)+4% CESS

Here is an example for the above Income tax slab and the increased Cess:

Sources of income	Current Slab Structure	Proposed Structure
Taxable Income	6,00,000	6,00,000
Standard Deduction	0	40,000
Transport allowance	19,200	0
Medical reimbursement	15,000	0
Net Taxable Income	5,65,800	5,60,000
Tax	23,160	22,000
Cess	694.8	880
Total Tax to be paid	23854.8	22,880
Savings	-	974.8

The above example illustrates about the employee income details and the tax calculation for both the Financial Year (2017-18) and the Assessment Year(2018-19). According to the proposed structure of the income tax slab the Standard deduction of Rs.40,000 will be deducted and the Cess will be calculated for 4%.

Resident individual who is of age 80 years or above

Net Income Range	Income Tax rates and cess
Upto Rs.5,00,000	NIL
Rs.5,00,001 to Rs.10,00,000	20% of (total income minus Rs.5,00,000) +4% CESS
Rs.10,00,001 and above	Rs.1,10,000+ 30% of (total income minus Rs.10,00,000)+4% CESS

Here is an example for the above Income tax slab and the increased Cess:

Sources of income	Current Slab Structure	Proposed Structure
Taxable Income	8,00,000	8,00,000
Standard Deduction	0	40,000
Transport allowance	19,200	0
Medical reimbursement	15,000	0
Net Taxable Income	7,65,800	7,60,000
Tax	53,160	52,000
Cess	1,594.8	2,080
Savings	-	674.8

The above example illustrates about the employee income details and the tax calculation for both the Financial Year(2017-18) and the Assessment Year(2018-19). According to the proposed structure of the income tax slab the Standard deduction of Rs.40,000 will be deducted and the Cess will be calculated for 4%.

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Frequently Asked Questions

Common questions about Income Tax Updates in 2018: Changes & Deductions.

The Budget 2018-19 has reintroduced a standard deduction of Rs. 40,000 for salaried individuals and pensioners in lieu of the present exemption allowed for transport allowance and reimbursement of medical expenses. This deduction will provide a uniform benefit to salaried employees in place of the varied transport and medical reimbursements.

The Budget 2018-19 has increased the cess levied on income tax from 3% to 4% across all tax slabs. This will result in a marginal increase in the overall tax liability for taxpayers. However, for many salaried individuals, the benefit of the standard deduction may offset the impact of the increased cess.

The Budget 2018-19 has announced several measures to ease the tax burden for senior citizens. These include an increase in the exemption limit for interest income on deposits from Rs. 10,000 to Rs. 50,000, a hike in the deduction limit for health insurance premium from Rs. 30,000 to Rs. 50,000 under Section 80D, and an increase in the deduction limit for medical expenditure for critical illnesses to Rs. 1 lakh under Section 80DDB.

No, the Budget 2018-19 has not made any changes to the existing income tax slabs for different categories of individuals, such as individuals below 60 years, individuals between 60-80 years, and individuals above 80 years. The tax rates and slabs remain the same as in the previous year.

The Budget 2018-19 has introduced a tax on long-term capital gains exceeding Rs. 1 lakh at the rate of 10%, without allowing any indexation benefit. This means that investors will have to pay tax on the gains arising from the sale of equity shares, equity-oriented mutual funds, or listed securities held for more than a year, if the gains exceed Rs. 1 lakh.

Section 87A provides for a rebate of Rs. 2,500 for resident individuals whose total income (including all sources and after deductions under Section 80) does not exceed Rs. 3,50,000. This rebate helps reduce the tax burden for lower-income individuals and provides them with additional tax relief.

The Budget 2018-19 has increased the deduction limit for medical expenditure for certain critical illnesses from Rs. 60,000 (for senior citizens) and Rs. 80,000 (for very senior citizens) to Rs. 1 lakh for all senior citizens under Section 80DDB. This will help senior citizens better manage the high medical expenses associated with critical illnesses.

Yes, the Budget 2018-19 has increased the deduction limit for health insurance premium under Section 80D from Rs. 30,000 to Rs. 50,000 for senior citizens. This will encourage more senior citizens to obtain adequate health insurance coverage and help them manage their medical expenses better.

The reintroduction of the standard deduction of Rs. 40,000 for salaried individuals and pensioners is a welcome move as it provides a uniform benefit to all salaried employees, irrespective of their actual expenses towards transport and medical reimbursements. This simplifies the tax filing process and provides tax relief to salaried individuals.

The Budget 2018-19 has not made any significant changes to the income tax slabs or rates for individuals. However, the reintroduction of the standard deduction, increase in cess, and various deductions specifically for senior citizens will impact the overall tax liability for individuals in different income brackets. While some may see a reduction in their tax burden, others may face a marginal increase due to the higher cess.