Most Important Changes in Tax Rules from FY 2018-19

The new financial year FY 2018-19 starts in another 2 weeks. Every budget makes some changes to tax laws every year and Budget 2018 was no different. We must be aware of these changes and plan our taxes and investments accordingly. Below are the 13 changes that Budget 2018 made and all of these would be applicable from April 1, 2018:

1. Reintroduction of Standard Deduction

Budget 2018 has introduced standard deduction of Rs 40,000 for salaried taxpayers. The good thing is this would be applicable for pensioners too. This deduction can be availed without submission of any proofs.

Download Latest Advance Income Tax Calculator for Financial Year 2018-19 & Ass Year 2019-20

2. Transport Allowance & Medical Reimbursement no more Tax-free

With the introduction of the standard deduction, the Transport Allowance & Medical Reimbursement would no longer be tax-free. Currently, the transport allowance was tax-free up to Rs 19,200 and medical reimbursement up to Rs 15,000. Net of these allowances and introduction of standard deduction salaried taxpayers have additional tax exemption of only Rs 5,800.

3. Cess on Taxes hiked to 4% (Health and Education Cess)

There has been NO change in the income tax slabs in Budget 2018. However, from FY 2018-19 the existing cess of 3% (Education, Secondary, and Higher Education Cess) has been increased to 4% and named as Health and Education Cess.

4. Reintroduction of Long-term capital gains tax on stocks and equity-based mutual funds

Budget 2018 has reintroduced long-term capital gains tax of 10%+cess (i.e. 10.4%) on gains made of the sale of equity or equity oriented mutual funds. To qualify for long-term capital gains the stocks/mutual fund should have been held for at least 1 year. The good news is capital gains up to Rs 1 lakh is tax-free.

5. Dividend distribution tax on Equity mutual funds

Starting FY 2018-19 the dividends from equity mutual funds would attract dividend distribution tax of 10%. However, the dividend received would be tax-free in hands of the investor. This is mainly to equate dividend and growth plans of equity mutual funds.

6. Increased tax exemption on interest income for senior citizens (80TTB)

Budget 2018 has introduced a new section 80TTB according to which senior citizens would be able to claim interest income up to Rs 50,000 as tax-exempted income. However, if you take benefit u/s 80TTB then you cannot claim tax benefit on interest received on savings bank account u/s 80TTA.

7. TDS limit on interest income increased for senior citizens u/s 194A

There is TDS (tax deduction at source) for almost all kind of income. However, as a relief to senior citizens, Budget 2018 has raised the limit for TDS on interest income from Rs 10,000 to Rs 50,000. So TDS would only be applicable to senior citizens if the annual interest income from a bank/post office is more than Rs 50,000.

8. Tax deduction for Single Premium Health Insurance Premium

In case assesses buy single premium health/medical insurance policy covering multiple years, the tax exemption u/s 80D would be available proportionately for all the years. For e.g., if you pay Rs 1,00,000 premium for a health policy covering for 5 years, you can claim Rs 20,000 tax exemption every year for 5 years subject to limits.

9. Increased deduction for medical insurance premium u/s 80D for senior citizens

The Medical Insurance premium and the preventive health check-up limit for senior citizens under section 80D has been increased from Rs 30,000 to Rs 50,000. This is good news in keeping with the ever increasing health care and related insurance costs.

10. Increased deduction for medical treatment u/s 80DDB for senior citizens

The deduction for medical treatment of specified critical illnesses has been increased to Rs 1 Lakh. Earlier the limit was Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens. Following illness are covered under section 80DDB:

§                    Neurological Diseases

§                    Parkinson’s Disease

§                    Malignant Cancers

§                    AIDS

§                    Chronic Renal failure

§                    Hemophilia

§                    Thalassaemia

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Claim Tax Benefit on both HRA & Home Loan

Can I claim Tax Benefit for both HRA & Home Loan? – A question which is often asked by many taxpayers. This is mainly because many employers do not allow both tax benefits together in certain situations. Unfortunately, this is NOT the right thing to do.

Both HRA and Home Loan Interest tax sections are unrelated. You claim tax benefit on HRA (House Rent Allowance) under section 10(13A) while the tax benefit on payment of interest on home loan comes under section 24(b). However, there can be issues if both the sections are used together with the intent of tax evasion.

We can have four situations for people claiming HRA & Home Loan tax benefit.

1.                 Rented house in place of employment and own house in a different city

2.                 Own flat in the city of employment and stay in a rented house in the same city

3.                 Own flat in the city of employment and stay with parents/siblings in the same city and pay the rent

4.                 Rented house in the different city and own house at the place of employment

1. Rented house in place of employment and own house in a different city

This is a very easy situation to handle. You can easily claim tax benefit on both and NO employer has an issue with this arrangement.

2. Own flat in the city of employment and stay in the rented house in the same city

This is the tricky situation. The first logical question which comes to mind is why would any person owning the house in the same city stay on rent? Most employers have the issue with this arrangement and may not give tax benefit on both HRA & Home Loan.

But legally you can claim tax benefit on both if you can give a valid reason for this arrangement. The reasons can be it's more convenient to stay. For e.g. your flat is on the outskirts with almost negligible public transport, you might not want to live there and rather stay close to your place of employment. The other reason could be the owned house is smaller for the size of the family.There are misconceptions that there should be the minimum distance between two houses. All this is a myth! All you need a genuine reason to stay on rent.

Click here to download Income Tax Calculator for Financial Year 2018-19 & Assess Year 2019-20 as per Finance Budget 2018

Also if you move to your new owned house in the middle of the financial year, it's a genuine thing to do and you can claim HRA for the period you stayed on rent and house loan benefit for the entire year. In case your employer is not ready to give tax benefit on both – you can claim HRA tax benefit from the employer and claim tax benefit on Home Loan while filing your Income Tax return. 

The other question is should the owned house be assumed to have notional rent? The answer is No. If you receive actual rent then show, only then you need to pay tax on that.

3. Own flat in the city of employment and stay with parents/siblings in the same city and pay the rent

The situation is similar as discussed above with the difference being your landlord or landlady is your close relative of parents/siblings. Any such rental transaction is full of suspicion and so you should be very careful if you use this for tax saving. You must do the following:

1.                 Actually, pay the rent by Cheque/ECS etc. and receiver should give rent receipt for the same.

2.                 The landlord/lady should show this rent as “income from house property” and pay taxes on the same.

There have been cases where rent paid to close relatives have been denied tax benefit by income tax department as there was NO evidence of the actual transaction. So stay careful.

4. Rented house in the different city and own house at a place of employment

There may be the case where you have rented a place where your spouse/parents stay (in a different city) while you own a house in the city of your employment and stay there. In this case, you cannot claim HRA tax benefit as HRA is paid for staying on rent for purpose of employment. However, you can easily claim home loan tax benefit.

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Income Tax Calculator for F.Y.2018-19 With Allowances Exempt From Tax For Salaried Person [Most Useful] for F.Y. 2018-19

If you are a salaried people, you have many ways to save tax. The allowances are one of the best ways to reduce the tax outgo. However, the tax saving from the allowances depends upon your employer. Because the only employer can decide to give you a particular allowance. If there is an allowance in your salary structure only then you can avail tax benefit.

Allowances are a fixed payment to the employee apart from the salary. This payment is given for some particular requirement of the employee. e. g Uniform Allowance, driver allowance etc. There are generally three types of allowances  – taxable allowances fully exempted allowances and partially exempted allowances.

In this post, I have listed the most useful tax exempted allowances, fully or partially. I hope using these allowances; you would be able to save a good amount of tax.

Click here to Download automated Income Tax Calculator for Salaried Persons for the Financial Year 2018-19 & Ass Year 2019-20 [ As per Finance Budget 2018]

Common Allowances

These allowances are available to private and government employees both. If your employer gives these allowances, you would not pay 100% tax on these.

House Rent Allowance

·             This is the most common and useful allowances. This allowance alone If your employer gives you the house rent allowance (HRA)and you live in rent, you would be eligible for tax exemption on HRA.

·             Even, you can pay rent to your parents to avail tax benefit of HRA. In this case, the house should be owned by your parents.

·             If you are paying more than Rs.1 lakh rent for a year, you have to give PAN of your landlord.

·             You would not get the full exemption on HRA. The tax exemption is given to the least of the following amount.

1.     Actual HRA Received

2.     40% of annual salary (For metro 50%)

3.     Rent Paid – 10% of your salary (basic + DA)

Leave Travel Allowance  (Abolished)

This allowance is related to your vacations. In the LTA, your employer gives this allowance for a holiday. The employer bears the burden of traveling through this allowance. The LTA is eligible for tax exemption. There is no maximum limit on LTA. It is the employer who gives LTA as per its wish. However, for tax exemption, you have to present the proof of travel. The tickets are required as the proof.

Note, the travel should be within India. The exemption is only for the travel. Food, and stay are not considered for exemption. You can take family members with you. The family means your spouse, children, and parents.

You can claim LTA twice in 4 years. The dates for this 4 years is prefixed. The current 4-year block is 2018-2021. During this tenure, you can avail LTA exemption twice any time.

Education Allowance

If your employer gives Allowance for children education, it is also exempted from tax. However, there is an upper limit of ₹100 per month per child. Thus total exemption is available on an allowance of 2400 in a year.

Hostel Allowance

If your children are living in the hostel and your employer gives hostel allowance, this allowance is also exempted from tax. The maximum amount of exemption is ₹200 per month per child.

Uniform Allowance

Often companies give uniform allowance to its employee. It is given to maintain proper uniform during the job. The Allowance given for this purpose is also exempt from tax. There is no upper limit for this allowance. There is no maximum limit for the exemption. However, the expense should be real.

Research or Academic Allowance

There are some jobs which require on job learning and research. Hence companies promote research and learning by giving allowance for this. Such allowance is also exempted from tax. There is no upper limit for this exemption.

Daily Allowance

Daily Allowance is given to an employee when he/she performs duty outside of his normal place. This allowance is given for food, lodging and other expenses of the employee. If your employer gives this allowance, this would be fully exempted from tax. There is no maximum limit for this.

Conveyance Allowance(Abolished)

Your employer can also give you the conveyance allowance. This allowance is given if you travel in course of your job. However, the exemption would be given on actual expense.

Transport Allowance(Abolished)

Sometimes people confuse conveyance allowance with transport allowance. Transport allowance is given for the commute between your place of work and home. There had been tax exemption on this allowance. The maximum limit of this allowance was Rs.1600/month.

However, this exemption was withdrawal from the Budget 2018. In place of this exemption, the government gives standard deduction.

Medical Allowance

This allowance is given to meet the medical expense of employee and family. But now this allowance is not exempted from the tax. The government is giving Standard deduction in place of exemption on this allowance. There was an upper limit of ₹15,000/year for the exemption.

Helper/Assistant Allowance

In a senior position, you may be entitled to the Helper/Assistant Allowance. It is also exempted from the tax.

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