Union Budget 2018-19 has a mixed bag of tax proposals, levying long term capital gains on stock market investments, lowering the corporate tax rate to 25 per cent, while giving little tax relief to salaried classes.
The Finance Minister in his Union Budget has announced a long term capital gains tax of 10 per cent on all gains of over Rs 1 lakh. However, gains up to January 31, 2018 would be grandfathered, he announced.
A 10 per cent tax on dividend distributed income from mutual funds has also been proposed. The short term capital gains tax of 15 per cent would continue. “The much anticipated introduction of LTCG is now back with a new avatar. As we know in tax legislation, this could only get worse over a period of time, with every successive budget diluting the original commitment of taxing long term gains,” said Milind Kothari, Managing Partner, BDO India.
Following the announcement, the Bombay Stock Exchange Sensex fell by 300 points. However, it recovered by over 250 points and was at 35,906.54 points. In a relief to companies and hoping to meet his promise to lower the corporate tax rate, Jaitley also reduced the corporate income tax to 25 per cent for firms with an annual turnover of up to Rs 250 crore. He said this would help micro, small and medium enterprises and cost the Exchequer Rs 7,000 crore. Companies were, however, hoping for an across-the-board reduction in tax rates and many were disappointed.
For the salaried individual taxpayers, the Minister has announced a standard deduction of Rs 40,000 in lieu of transport and medical allowance. But extending help to senior citizens, the Budget has hiked the deduction on health insurance premium paid to Rs 50,000 a year from the earlier Rs 30,000. “The Rs 7.5 lakh per senior citizen limit for investment in interest-bearing LIC schemes doubled to Rs 15 lakh,” he added.
Alok Agrawal, Senior Director, Deloitte India, “Standard deduction of Rs 40,000 p.a. for salaried individuals seems to be a very nominal benefit as the current tax-free limit for medical expense reimbursement of 15,000 p.a. and transport allowance exemption of Rs 1,600 p.m. anyway leads to a total tax-free salary of Rs 34,200 per annum.”
Electronic items, including mobile phones, will become more expensive after Jaitley announced a hike in the customs duty on these goods from 15 per cent to 20 per cent, to boost domestic manufacturing and job creation.