This financial year (2018-19) has witnessed a lot of amendments to the income tax rules, which were introduced in the Budget 2018. The introduction of the standard deduction for salaried employees, higher deduction for senior citizens on health insurance premiums were some of the changes.
Here are 10 changes to Income Tax rules that took place in 2018:
1) Higher interest income exemption for senior citizens
For senior citizens, the government increased interest income exemption limit on bank and post office deposits to Rs 50,000, from Rs 10,000 earlier. In addition, for senior citizens, tax deduction at source (TDS) will not be triggered if interest income is up to Rs 50,000.
2) Dividend distribution tax on dividends from equity mutual funds
Dividends distributed by equity mutual funds, which were earlier tax-free, attracted tax at the rate of 10%. Remember that dividends from equity mutual funds are tax-free in the hands of investors. But dividends from equity mutual funds are paid after deducting a dividend distribution tax (DDT) of 11.648% (including cess), which reduces the in-hand return for investors.
3) Long-term capital gains tax on equities
From 1 April 2018, a new long-term capital gains (LTCG) tax regime on equity instruments - listed shares or equity-oriented mutual funds - came into effect. Earlier such gains on equity were exempt from tax. Now investors have to pay 10% tax on gains exceeding Rs 1 lakh a year. Equity holding beyond a year is considered long term. However, to soften the blow, the government introduced a grandfathering provision, which means that if listed shares or equity funds were acquired before February 1, there would be no levy of long-term capital gains tax.
4) Rs. 40,000 standard deduction
Standard deduction was introduced in this year’s budget in lieu of the earlier exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. Unlike other deductions and exemptions, to claim standard deduction, one need not provide any documents and proof. A salaried individual or pensioner can claim standard deduction up to Rs 40,000 from his/her income.
5) Higher cess
The government raised the cess on income tax to 4% from 3% for individual taxpayers on the amount of income tax payable.
6) Penalty on late filing of ITR
Though announced in the Budget presented in 2017, a fee levied on belated filing of income tax return (ITR) came into effect from April 1, 2018 and was applicable for returns filed in 2018 for FY2017-18 onwards.
The Income Tax Act was amended by inserting a new section 234F. According to this section, an assessee would be liable to pay a maximum late filing fee of Rs 10,000 if his/her ITR is filed after the expiry of the due date. However as a relief to small taxpayers (whose income does not exceed Rs 5 lakh in a financial year) the late filing fee for them was pegged at Rs 1,000.
7) Tax exemption on NPS for the self-employed
Employees contributing to the National Pension System (NPS) were allowed to withdraw up to 40% of the total corpus without any tax at the time of maturity or closure of the account. The same benefit has now been extended to self-employed subscribers.
8) Lock-in period of 54EC bonds increased
Long-term profits from real estate sales are tax-free if invested in specified bonds under Section 54EC. Till last year, you had to stay invested in the 54EC bonds for at least three years to enjoy the tax break, but from this year, your money will be locked in for five years.
9) Changes in PAN card application form
The application form to apply for PAN card has undergone changes twice this year. The first change was to include the option of transgender in the forms. PAN card application forms, i.e., Forms 49A and 49AA have been amended to include an option for transgender along with 'male' and 'female'. In addition to that, no supporting documents would be required for proof of gender.
Another major change in the forms is doing away with the mandatory requirement of mentioning father's name. An applicant is not mandatorily required to quote his/her father's name if the mother of the applicant is a single parent. This rule came into effect from December 5, 2018.
10) Higher deduction on health insurance premiums
Senior citizens now can avail deduction of up to Rs 50,000 for health insurance premium under Section 80D. Earlier the limit was Rs 30,000. Also, the deduction available for payment towards medical treatment of specified disease has been hiked to Rs 1 lakh for senior citizens.
11) Govt brings NPS on a par with PF, makes it tax-free
The Union Cabinet recently approved many changes in the NPS to make it more attractive for investors. NPS will be made fully tax-free on withdrawal. Subscribers will get full tax exemption on the 60% of the corpus that an investor is allowed to withdraw on maturity. This will help bring the NPS on a par with other tax-saving instruments like the PPF where withdrawals are fully tax-free. This is likely to be effective from April 1 next year. (Read: NPS rule changes explained in 10 points)
12) More tax benefits on single premium health insurance policies
In cases where premium for health insurance for multiple years has been paid in one year, the deduction shall be allowed on proportionate basis for the number for years for which the benefit of health insurance is provided.