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9 personal finance takeaways from Budget 2018

Apr 30, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

This year’s budget was a mixed bag for the middle class. While it did shower benefits on senior citizens and explored ways to augment women’s income, the salaried class on the whole felt a little underwhelmed. But that’s not to say this year’s budget was a non-event. There was still a lot of tweaking done, changes that can ultimately have an impact on your money in the long run. So, why give this year’s budget announcement a wide berth? Have a look at the ten changes announced this time around.

  1. Return of standard deduction

The government scrapped medical and transport allowances to reintroduce a standard tax deduction of Rs 40,000.

What this means is that the government has increased the tax exemption amount by Rs 5,800 for the salaried people. That’s because medical allowance (Rs 15,000) and transport allowance (Rs 19,200) earlier came up to Rs 34,200.

A quick calculation tells us that the increase in tax deduction will hardly help the salaried class, especially those who fall in the 5% tax bracket (those earning less than Rs 5 lakh per annum). They will be able to save Rs 290 further in taxes (5% of Rs 5,800).

However, the pensioners can benefit from this as they never received transport and medical allowances earlier.

  1. Tax exemption on interest earned raised

For all the budget grumblings from the middle class this year, there can be little debate about how senior citizen-friendly this year’s budget has been.

The government raised senior citizen’s exemption limit on interest earned from fixed deposits and recurring deposits. The exemption limit has been increased from Rs 10,000 to Rs 50,000.

This move is beneficial to senior citizens because the interest they earn (up to Rs 50,000) will not be taxed at source.

  1. 80D deductions for senior citizens

People avail 80D tax deductions when they pay their medical insurance premiums.

Senior citizens have received a boost in this case, with the government increasing the tax deduction limit on health insurance premium from Rs 30,000 to Rs 50,000. 

It is likely to be a boon for those above 60 given how medical inflation has been galloping in recent years.

  1. Hike in PMVVY limit

This is another sliver of good news for senior citizens.

Pradhan Mantri Vaya Vandana Yojana (PMVVY), launched in May 2017, allows people above the age of 60 to get fixed returns at 8% for the next ten years. The maximum amount you could invest was Rs 7.5 lakh. But the government has now doubled the investment limit to Rs 15 lakh.

This means that senior citizens can now expect to either receive a larger yield at the time of maturity or receive a higher pension amount every month. The decision rests on them.

  1. Women entering the workforce to get more take-home

The government has also reduced women’s contribution to Employer’s Provident Fund (EPF). This means that they will get a higher take-home salary. 

Women joining the workforce for the first time will only contribute 8% instead of 12% or 10% of the EPF for the first three years of their employment. 

  1. LTCG Tax

This year’s budget wasn’t an easy watch for investors. Long-term capital gains tax, or LTCG, found its way back in our investing lexicon. The government reintroduced a 10% tax on company stocks and equity mutual funds if the proceeds exceed Rs 1 lakh. However, all gains till January 31 will be exempted. As LTCG tax is not applicable on ULIPS, this can still be a good investment option with insurance benefits.

  1. Dividend distribution tax on equity mutual funds

The government has proposed to levy a 10% dividend distribution tax (DDT) on all equity funds that provide dividend option. So, people who have invested in equity funds with dividend plan need to consider their investment strategy. That’s because the 10% DDT would deplete their returns.

  1. Cess hike

Budget 2018 increased the cess on income tax from 3% to 4%. The hike will affect all categories of taxpayers.

This means that those in the highest tax bracket (20%) will have to pay a further Rs 2,625 in taxes, those in the 10% tax bracket will pay an additional Rs 1,125 in taxes, while those in the 5% tax bracket will pay additional tax of Rs 125.      

  1. Income tax slabs remain unchanged

And lastly, we come to the personal income tax slab. We kept it till the end because there were actually no changes made in this budget. That’s because this year’s budget has largely focused on the under-served. With this being the last full-fledged budget before the country heads to polls next year, the government has made a concerted effort to upgrade health and farming infrastructure. This meant that somebody had to be kept in the freezer. In this case, it was the male white-collar worker.

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Advt. no.: IA/Apr 2018/3892


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