April 1, the beginning of the new Financial Year 2018-19, brings in some major changes in the tax structure which were announced by Finance Minister Arun Jaitley while presenting the Union Budget 2018. The tax reforms will impact individual taxpayers in a number of ways, such as the standard deduction of Rs 40,000 instead of the transport allowance and medical expenses.
Standard Deduction
Though the tax slabs were not changed this year, the finance minister reintroduced the standard deduction method. A standard deduction of Rs 40,000 will be effective in lieu of transport allowance and medical reimbursement.
Around 2.5 crore salaried employees and pensioners will gain from the new rule.
The Central Board of Direct Taxes had previously said that the standard deduction can be claimed directly and would not require any proofs or bills to avail it.
Medical, travel allowances will be taxed(Abolished)
With the induction of standard deduction, medical and travel allowances will be taxed from next fiscal. Medical allowances up to Rs 15,000 and travel allowance till Rs 1,600 per month used to be tax-free and could be claimed by furnishing bills.
Cess now 4%
Finance Minister Arun Jaitley has hiked the educational cess on income tax and corporation tax to 4 percent. At present, individual taxpayers shell out a 3 percent cess – 2 percent cess for primary education and 1 percent cess for secondary and higher education.
For senior citizens
Tax exemptions were announced on deposits with banks and post offices for senior citizens only. Interest income will now be increased five times from Rs 10,000 to Rs 50,000.
TDS (tax deducted at source) under section 194A will not be applicable to any fixed deposit scheme or recurring deposit schemes for the senior citizens.
Breather for the senior citizen on medical expenses
The deduction limit for health insurance premium or medical expenditure was increased from Rs 30,000 to Rs 50,000 under section 80D.
The deduction limit for medical expenses for critical illness was also hiked from Rs 60,000 (for senior citizens) and Rs 80,000 (for very senior citizens) to Rs 1 lakh, under section 80DDB.
Pradhan Mantri Vaya Vandana Yojana
Pradhan Mantri Vaya Vandana Yojana was extended up to March 2020, under which senior citizens can invest up to Rs 15 lakh. The current limit is Rs 7.5 lakh per senior citizen.
National Pension System is tax-free
The withdrawal of pension money was made tax free for non-employee subscribers. There is no such provision at present.
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