Know how Budget announcements affect your finances

Finally the grand annual financial announcement is over and now it is time to evaluate the impact of the Budget on your finances. Middle-class expected at least an increase in tax slabs, but Finance Minister Arun Jaitely left them disappointed.

Key Budget proposals on personal finance:

No change in income tax slabs      

Announces long-term capital gains (LTCG) on stock market transaction. 10% tax on capital gains exceeding Rs 1 lakh. All gains up to Jan 31, 2018, will be grandfathered. No change in  securities transaction tax (STT) regime, tweets Finance Secretary.

Jaitley re-introduces standard deduction for salaried class upto Rs. 40,000 in lieu of transport, medical allowance. Standard deduction to cost Rs 8000 crore to government.

• Increase in education cess proposed by 1% - rate now increased from 3% to 4%
• Benefit for senior citizens u/s 80TTA to be increased to Rs. 50,000 for interest income
• Short term capital gains continue to be taxable at 15%
• No change in shareholding period for long term and short term capital gains
• Proposes 10% DDT on equity oriented mutual funds.
• 25% corp. tax rate for companies with turnover upto Rs 250 crore. Revenue foregone on account of 25% rate is Rs 7,000 crore.
• In respect of stamp duty valuation substitution for purchaser and seller for real estate transaction, no adjustment to be made if circle rate value does not exceed by 5% as compared to sales consideration
• Deduction u/s 80DDB (for availing tax benefits for treatment of dependants)  to be increased to Rs 1,00,000 for all senior citizens
• Sec 11 exemption to trust/charitable institutions - payments exceeding Rs 10,000  in cash to be disallowed and subjected to tax.
• E-assessments to be rolled out across country. New scheme for assessments to be notified.
• Proposal to regulate crypto-currencies to mitigate use for illegal activities.
• On the indirect tax front, proposes procedural amendments to Customs Act.
• Import duty on mobile phones hiked to 20% while that on TVs also increased to promote domestic manufacturers
• 3% social welfare surcharge on import of certain goods.

Budget 2018 proposes enlarging of the scope of business connection with modified PE Rule as per Multilateral Instrument (MLI);

"Business connection” shall include any business activities carried through a person who, acting on behalf of the non-resident, habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by the non-resident; “Business connection” definition also expanded to include “Significant Economic presence”;

Significant Economic presence includes any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed

Or systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed in India through digital means

Plethora of Integrated Child Development Services (ICDS) related amendments introduced in the wake of recent judicial pronouncements. ICDS amendments to have retrospective application given that most taxpayers have already complied with the same.

Corporate tax

Reduced Corporate tax rate to 25% for companies with turnover of Rs 250 crore in FY 2016-17. This reduced corporate tax rate shall greatly benefit the MSME sector. This is a welcome move which shall though result in a loss of 7,000 crore revenue in FY 2018-19 to the government but shall also improve the employment generation.

“FM announced that in order to increase the ‘tax net’, the current limit for tax audit under section 44AB shall be increased, which is currently set at 2 crore for businessmen and 50 Lakh for professionals. This shall surely increase the number of taxpayers filing income tax return. But only the fine print will tell whether this shall translate into a tangible benefit for the taxpayers or will only remain an announcement,”  said Rakesh Nangia, Managing Partner, Nangia & Co LLP.

Personal tax

Announced that salaries class shall be put in parity with the individual business taxpayers who are able to claim the benefit of expenses and pay taxes only on net basis. Standard deduction has been reintroduced at 40,000 and the transport allowance of Rs 9,600 and Medical allowance of Rs 15,000 taken away , thereby resulting in a negligible benefit.

“GSTN linking with the data base of MSMEs for working capital funding signifies that technology shall be driving the new governance. This indicates that GSTN will be used far beyond GST,” Finance minister said.

After implementing the recommendations of the Commission or 7th CPC, the government on Thursday announced another relief for its employees. Jaitley proposed to raise standard deduction to Rs 40,000.
After the 7th Pay Commission benefits, the increase in standard deduction will help central government employees to save more money.

The standard deduction of Rs 40,000 is introduced in lieu of transport and medical reimbursements for salaried employees. In his budget speech, FM said that Rs 8,000 crore revenue lost due to the standard deduction allowed to salaried employees. However, the transport allowance at enhanced rate shall continue to be available to differently-abled persons. Also, other medical reimbursement benefits in case of hospitalisation etc., for all employees shall continue.

“Standard deduction shall significantly benefit the pensioners too, who normally do not enjoy any allowance on account of transport and medical expenses,"  Nangia said.  

For senior citizens, exemption of interest income on bank deposits has also been raised to Rs 50,000 in the Budget 2018. Standard deduction was abolished in 2005. It had allowed a salaried employee to claim a flat deduction from salary income of Rs 30,000 or 40% of salary (if salary did not exceed Rs 5 Lakhs), or a deduction of Rs 20,000 (if salary exceeded Rs 5 lakh), 

While the 7th Pay Commission raised the salaries of the central government employees, the standard deduction will benefit 2.5 crores salaried employees and pensioners.

Indirect TAX

Customs duty increased on mobile phones from 15% to 20% and on some of their parts and accessories to 15%.  Further Customs duty increased on certain parts of TVs to 15%;

Education Cess and Secondary and Higher Education Cess on imported goods abolished.  In its place Social Welfare Surcharge, at the rate of 10% of the aggregate duties of Customs, on imported goods, imposed to provide for social welfare schemes of the Government.  Goods which were exempted from Education Cesses on imported goods will, however, be exempt from this Surcharge.  Further, certain specified goods, to attract the proposed Surcharge at the rate of 3% of the aggregate duties of customs only;

While making imports costlier, these measure will promote creation of more jobs in India and boost the make in India campaign.