Budget 2018: Changes in Income Tax Rules

 

1. Standard Deduction of Rs 40,000 for Salaried and Pensioners

2. Transport Allowance & Medical Reimbursement No more tax exempt for salaried

3. Cess hiked from 3% to 4% (renamed as Health & Education Cess)

4. Rs 50,000 interest income for senior citizens tax exempted under newly introduced Section 80TTB

5. Health Insurance Premium Tax exemption limit increased to Rs 50,000 u/s 80D for senior citizens

6. Increased deduction for medical treatment u/s 80DDB for senior citizens up to Rs 1 lakh

7. 10% tax on long-term capital gains (above Rs 1 Lakh) on stocks & equity-based mutual funds. Also 10% dividend distribution tax imposed on dividend paid by equity mutual funds.

 

Mentioning Some Points I am frequently asked

1. There is NO tax benefit on Infrastructure Bonds

2. There is NO separate tax slab for Men & Women

 

We give a brief of all the tax saving sections below:

 

1. Section 80C/80CCC/80CCD

 

These 3 are the most popular sections for tax saving and have a lot of options to save tax. The maximum exemption combining all the above sections is Rs 1.5 lakhs. 80CCC deals with the pension products while 80CCD includes Central Government Employee Pension Scheme.

You can choose from the following for tax saving investments:

  1. Employee/ Voluntary Provident Fund (EPF/VPF)
  2. PPF (Public Provident fund)
  3. Sukanya Samriddhi Account
  4. National Saving Certificate (NSC)
  5. Senior Citizen’s Saving Scheme (SCSS)
  6. 5 years Tax Saving Fixed Deposit in banks/post offices
  7. Life Insurance Premium
  8. Pension Plans from Life Insurance or Mutual Funds
  9. NPS
  10. Equity Linked Saving Scheme (ELSS – popularly known as Tax Saving Mutual Funds)
  11. Central Government Employee Pension Scheme
  12. Principal Payment on Home Loan
  13. Stamp Duty and registration of the House
  14. Tuition Fee for 2 children

We have done a comprehensive analysis of all the above available options and you can choose which is the best for you.

 

2. Section 80CCD(1B) – Investment in NPS

 

Budget 2015 has allowed additional exemption of Rs 50,000 for investment in NPS. This is continued this year too.

 

3. Payment of interest on Home Loan (Section 24)

 

The interest paid up to Rs 2 lakhs on home loan for self-occupied or rented home is exempted u/s 24. Earlier there was NO limit on interest deduction on rented property. Budget 2017 has changed this and now the tax exemption limit for interest paid on home loan is Rs 2 lakhs, irrespective of it being self-occupied or rented. However, for rented homes, any loss in excess of Rs 2 lakhs can be carried forward for up to 7 years.

 

4. Payment of Interest on Education Loan (Section 80E)

 

The entire interest paid (without any upper limit) on education loan in a financial year is eligible for deduction u/s 80E. However, there is no deduction on principal paid for the Education Loan.

The loan should be for the education of self, spouse or children only and should be taken for pursuing full-time courses only. The loan has to be taken necessarily from an approved charitable trust or a financial institution only.

The deduction is applicable for the year you start paying your interest and seven more years immediately after the initial year. So in all, you can claim an education loan deduction for a maximum of eight years.

 

5. Medical insurance for Self and Parents (Section 80D)

 

Premium paid for Mediclaim/ Health Insurance for Self, Spouse, Children and Parents qualify for deduction u/s 80D. You can claim a maximum deduction of Rs 25,000 in case you are below 60 years of age and Rs 50,000 above 60 years of age.

An additional deduction of Rs 25,000 can be claimed for buying health insurance for your parents (Rs 50,000 in case of either parent being senior citizens). This deduction can be claimed irrespective of parents being dependent on you or not. However, this benefit is not available for buying health insurance for in-laws.

HUFs can also claim this deduction for premium paid for insuring the health of any member of the HUF.

To avail deduction, the premium should be paid in any mode other than cash. Budget 2013 had introduced deduction of Rs 5,000 (within the Rs 25,000/30,000 limit) is also allowed for preventive health checkup for Self, Spouse, dependent Children and Parents. Its continued to this year too.

 

6. Treatment of Serious disease (Section 80DDB)

 

The cost incurred for treatment of certain disease for self and dependents gets a deduction for Income tax. For senior citizens, the deduction amount is up to Rs 1,00,000;  while for all others it’s Rs 40,000. Dependent can be parents, spouse, children or siblings. They should be wholly dependent on you.

To claim the tax exemption you need a certificate from a specialist from Government Hospital as proof of the ailment and the treatment. In case the expenses have been reimbursed by the insurance companies or your employer, this deduction cannot be claimed. In case of partial reimbursement, the balance amount can be claimed as a deduction

Diseases Covered:

  1. Neurological Diseases
  2. Parkinson’s Disease
  3. Malignant Cancers
  4. AIDS
  5. Chronic Renal failure
  6. Haemophilia
  7. Thalassaemia

 

8. Physically Disabled Taxpayer (Section 80U)

 

Tax Payer can claim deduction u/s 80U in case he suffers from certain disabilities or diseases. The deduction is Rs 75,000 in case of normal disability (40% or more disability) and Rs 1.25 Lakh for severe disability (80% or more disability)

A certificate from neurologist or Civil Surgeon or Chief Medical Officer of Government Hospital would be required as proof for the ailment.

Disabilities Covered

  1. Blindness and Vision problems
  2. Leprosy-cured
  3. Hearing impairment
  4. Locomotor disability
  5. Mental retardation or illness
  6. Autism
  7. Cerebral Palsy

 

9. Physically Disabled Dependent (Section 80DD)

 

In case you have dependent who is differently abled, you can claim a deduction for expenses on his maintenance and medical treatment up to Rs 75,000 or actual expenditure incurred, whichever is lesser. The limit is Rs 1.25 Lakh for severe disability conditions i.e. 80% or more of the disabilities. Dependent can be parents, spouse, children or siblings. Also, the dependent should not have claimed any deduction for self-disability u/s 80DDB.

To claim the tax benefit you would need a disability certificate issued by a state or central government medical board.

You can also claim tax exemption on premiums paid for life insurance policy (in taxpayers’ name) where the disabled person is the beneficiary. In case the disabled dependent expires before the taxpayer, the policy amount is returned back and treated as income for the year and is fully taxable.

40% or more of the following Disability is considered for purpose of tax exemption

  1. Blindness and Vision problems
  2. Leprosy-cured
  3. Hearing impairment
  4. Locomotor disability
  5. Mental retardation or illness

 

10. Donations to Charitable Institutions (Section 80G)

 

The government encourages us to donate to Charitable Organizations by providing a tax deduction for the same u/s 80G. Some donations are exempted for 100% of the amount donated while for others it’s 50% of the donated amount. Also for most donations, the maximum exemption you can claim is limited to 10% of your gross annual income. Please note that only donations made in cash or cheque are eligible for deduction. Donations in kind like giving clothes, food, etc are not covered for tax exemption.

How to Claim Sec 80G Deduction?

  1. A signed & stamped receipt issued by the Charitable Institution for your donation is a must
  2. The receipt should have the registration number issued by Income Tax Dept printed on it
  3. Your name on the receipt should match with that on PAN Number
  4. Also, the amount donated should be mentioned both in number and words

 

11. Donations for Scientific Research (Section 80GGA)

 

100% tax deduction is allowed for donation to the following for scientific research u/s 80GGC

  1. To a scientific research association or University, college or other institution for an undertaking of scientific research
  2. To a University, college or other institution to be used for research in social science or statistical research
  3. To an association or institution, undertaking of any programme of rural development
  4. To a public sector company or a local authority or to an association or institution approved by the National Committee, for carrying out any eligible project or scheme
  5. To the National Urban Poverty Eradication Fund set up

 

12. Donations to Political Parties (Section 80GGC)

 

100% tax deduction is allowed for donation to a political party registered under section 29A of the Representation of the People Act, 1951 u/s 80GGC. The maximum exemption you can claim is limited to 10% of your gross annual income.

 

13. House Rent in case HRA is not part of Salary (Section 80GG)

 

In case, you do not receive HRA (House Rent Allowance) as a salary component, you can still claim house rent deduction u/s 80GG. Tax Payer may be either a salaried/pensioner or self-employed.

To avail this you need to satisfy the following conditions:

  1. The rent paid should be more than10% of the income
  2. No one in the family including spouse, minor children or self should own a house in the city you are living. If you own a house in a different city, you have to consider rental income on the same

The House Rent deduction is lower of the 3 numbers:

  1. Rs. 5,000 per month [changed from Rs 2,000 to Rs 5,000 in Budget 2016]
  2. 25% of annual income
  3.  (Rent Paid – 10% of Annual Income)

You need to fill form no 10BA along with the tax return form

 

Along with the tax saving sections and investments for both salaried and business, it also has details about all the common salary components and their tax treatment. This section can help you to plan your salary components in case your company offers such a facility.

 

We hope that this post would help you in understanding, planning and saving taxes.