Impact of Budget 2018 on Long Term Capital GainsFebruary 1, 2018
Last Chance: File ITR for FY 15-16 & FY 16-17February 8, 2018
The budget was announced today by the honourable Finance Minister. It was the 5th and the last full budget of the reigning government before the upcoming General election next year.
He stated several facts related to direct taxes and announced a few changes in the Income tax laws focusing on the senior citizens of the society. Here are the key highlights of the budget proposals on Direct taxes.
- The government has proposed no changes to the income tax rates for individuals.
- The existing 3% education cess is proposed to be replaced by a 4% “Health and Education Cess” to take care of the needs of education and health of BPL and rural families.
- The present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses is proposed to be replaced with a standard deduction of Rs 40,000 for all salaried employees. The transport allowance at Rs 3,200 pm will continue for differently- abled persons. This will result in an additional deduction of Rs 5,800 per year for most of the salaried taxpayers. Further, it will provide Rs 40,000 additional deduction to all the pensioners who do not receive transport allowance and medical reimbursement. These changes would benefit around 2.5 crore salaried employees and pensioners.
- Long-term capital gains on transfer of listed equity shares or equity MFs, exceeding Rs 1 lakh is proposed to be taxed at the rate of 10% without allowing the benefit of indexation. However, this amendment will be effective from 1st April 2018 and will not apply to the gains earned till 31st January 2018. Hence, those who have substantial Long-term Capital Gain arising post 31st January 2018 till 31st March 2018, will be better off if they book such gains on or before 31st March 2018 as they will not pay this LTCG tax till 31st March 2018.
- There is no change in the holding period of listed equity shares needed to qualify them as long-term assets. The gains from equity shares held up to one year will remain short-term capital gain and will continue to be taxed at the rate of 15%.
- Dividend distribution tax of 10% is proposed to be introduced on income distributed by the equity oriented mutual funds.
- E-assessment will be rolled out across the country, transforming the age-old assessment procedure of the income tax department. A new scheme for assessment will be notified where the assessment will be done in electronic mode eliminating person to person contact leading to greater efficiency and transparency.
- Proposed reduction of the corporate tax rate to 25% for companies whose turnover was less than Rs 50 crore in the financial year 2015-16 has now been extended to companies who have reported turnover up to Rs 250 crore in the financial year 2016-17. This will benefit 99% of micro, small and medium enterprises. Only about 7,000 companies whose turnover is above Rs 250 crore will remain in 30% slab.
- Section 54EC exemption is proposed to be restricted only for sale of land or building or both and will not be available for any other asset. The holding (lock-in) period of these bonds is proposed to be increased from existing 3 years to 5 years from 1st April 2018 (i.e. A.Y. 2019-20).
- The growth of direct taxes stood at 12.6% in the FY 2016-17. The growth rate further improved in this FY and went up to 18.7% by 15th January 2018.
- Strong anti-tax evasion measures taken by the government resulted in personal income tax collection of Rs 90,000 crore in the last two years which is higher than the average tax collected during the pre-FY 2016-17 era.
- In the financial year 2016-17, the tax filing numbers also improved. 85.51 lakh new taxpayers filed their income tax returns as against 66.26 lakh in the immediately preceding year.
- A number of effective taxpayer base has gone up from Rs 6.47 crore at the beginning of FY 2014-15 to Rs 8.27 crore at the end of FY 2016-17.
- 41% more returns were filed under section 44AD of the presumptive taxation scheme. However, the turnover shown is still not encouraging. Total 44.72 lakh returns were filed for the assessment year 2017-18 by individuals, HUFs and firms with a meagre average turnover of Rs 97 lakh and average tax payment of Rs 7,000 only.
- Similarly, total 5.68 lakh returns were filed under section 44ADA of presumptive taxation scheme for professionals for the assessment year 2017-18 with average gross receipts of Rs 5.73 lakh only. The average tax paid is only Rs 35,000 which is not so encouraging.
- No adjustment shall be made to the sale consideration for the calculation of capital gain from sale of an immovable property where the circle rate value does not exceed by more than 5% of the actual consideration received for such sale. Earlier section 50C required that if the circle rate exceeds the sale consideration as per the agreement of sale then the circle rate would be considered for calculation of capital gains. This will provide a bit relief in case of hardship in real estate transaction.
- Tax data analysis suggests that major portion of the personal income-tax collection comes from the salaried class. For AY 2016-17, 1.89 crore salaried individuals paid a total tax of Rs 44 lakh crore with an average payment of Rs 76,306 per person. As against, 1.88 crores individual business and professional taxpayers, who paid a total tax of Rs 48,000 crores with an average tax payment of Rs 25,753.
- Benefits to Senior Citizens:
- Interest income of senior citizens (60+years of age) up to Rs 50,000 on deposits with banks and post offices will be exempt u/s 80TTB and no TDS shall be deducted on such income, under section 194A.
- Health insurance premium or medical expenditure for all senior citizens will now be eligible for the benefit of deduction of up to Rs 50,000 per annum u/s 80D.
- Deduction u/s 80DDB for expenses incurred on treatment of in respect of certain critical illness will be raised to Rs 1 lakh in respect of all senior citizens from existing Rs 60,000 / 80,000.
- Now senior citizens will be able to invest in Pradhan Mantri Vaya Vandana Yojana by Life Insurance Corporation of India, up to March 2020 providing an assured return of 8%. Also now they will be able to invest up to Rs 15 lakh in this scheme as against earlier Rs. 7.5 lakh.
- Transfer of derivatives and certain securities by non-residents will now be exempt from capital gains tax if such transfer is done through stock exchanges located in IFSC – International Financial Service Center.
- Non-corporate taxpayers operating in IFSC shall be charged Alternate Minimum Tax (AMT) at concessional rate of 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.
- Cash payments made by trusts and institutions in excess of Rs 10,000 shall be eligible for deduction while computing taxable income of such trusts and institutions, and the same shall, therefore, be subject to tax.
The FM has tried to make sure that he focusses on the needy sections of farmers and senior citizens in this budget and not making any other significant changes in tax rates and other areas for the salaried class.