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Long Term Capital Gains Tax Deduction Revised 80D Limit

Income Tax

Income Tax

Long Term Capital Gains Tax Deduction Revised 80D Limit

Several proposals announced by finance minister Arun Jaitley in his February 1 Union Budget 2018 will kick in from April 1, the beginning of the new fiscal year 2018-19.

These measures will include the reintroduction of the tax on long term capital gains (LTCG) exceeding Rs 1 lakh from sale of shares.

Besides, other tax proposals like the corporate tax of 25% on businesses with a turnover of up to Rs 250 crore, and a standard deduction of Rs 40,000 in lieu of transport allowance and medical reimbursement will come into effect from Sunday.

While the exemption limit on income from interest for senior citizens has been raised five times to Rs 50,000 per year, the limit of deduction for health insurance premium and medical expenditure has been raised to Rs 50,000 from Rs 30,000 under section 80D of the I-T Act.

For senior and very senior citizens, the tax deduction for critical illness will be Rs 1 lakh from April 1, as against the existing limit of Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens.

In the last regular Budget of the present NDA government, Finance Minister Arun Jaitley had retained the 10-15% surcharge on super-rich, while raising the health and education cess, levied on all taxable income, to 4% from 3% at present.

These proposals too will come into effect from Sunday.

The 2018-19 Budget had after a gap of 14 years reintroduced 10% tax on LTCG exceeding Rs 1 lakh from sale of shares.

Currently, 15% tax is levied on capital gains made on share sale within a year of purchase. However, there is no tax for shares sold after a year of purchase.

However, indexation benefit for computing tax liability on sale of shares listed after January 31 will be available, which will come as a relief to investors. In July 2004, the government had abolished LTCG tax on shares and replaced it with the securities transaction tax (STT) – a same-day tax credit system that continues.

Standard deduction

Keeping the income tax rates and slabs unchanged, the Budget introduced a Rs 40,000 standard deduction for salaried employees and pensioners in lieu of the present exemption in respect of transport and medical expenses.

The standard deduction, which is provided to salary earners, was discontinued from the assessment year 2006-07. Presently, no tax is applicable on Rs 19,200 of transport allowance and medical expenditure of up to Rs 15,000. This has now been subsumed into the new standard deduction of Rs 40,000 which may mean very little benefit in tax saving considering that health and education cess has gone up.

With regard to corporate tax, the Budget has lowered the rate to 25% for companies with turnover of up to Rs 250 crore in 2016-17.

The changes will benefit the entire class of micro, small and medium enterprises which accounts for almost 99% of companies filing their tax returns.

In 2015 Budget, Jaitley had promised to reduce corporate tax from current 30% to 25% over four years.

The Union Budget 2018-19 was the last full budget before the general elections next year, when a vote on account would be presented. The next full budget will be presented by the new government.