Introduction to Finance Act 2018
Finance Act 2018 is an all-encompassing statute for India which effectuates the financial proposals made throughout the year at the beginning of every Financial Year. It gets renewed every year and includes all governmental financial policies which have been proposed and passed. It governs several essential elements which include, inter alia, treatment of Income through salary, Agricultural Income, Tax slabs for normal citizens, senior citizen and very senior citizens, Income Tax Surcharges, Tax chargeable to companies, and Advance Tax.
The Finance Act 2018 was passed and enforced by the Parliament on 28th March 2018 with 221 Sections, 8 Chapters, and 3 Schedules.
Facts About Finance Act 2018 in India
This article shall highlight ten important facts about the Finance Act 2018, which every tax-payer or exempted citizen ‘must know.’
To start with, while the income slabs and tax rates have not been changed at all, the cess has been given a slight hike from 3 to 4 per cent. This, in turn, has a multi-layer effect. For Income earners whose Annual Taxable Income is between 10 lakh to 50 lakh, the Maximum Marginal Rate (MMR) has been pulled from 30.9 per cent to 31.2 per cent. For Income earners whose Annual Taxable Income is between 50 lakh to 1 crore, the MMR has been pulled from 33.9 per cent to 34.32 per cent while for the Income earners above one crore, the MMR has been raised from 35.53 per cent to 35.88 per cent. The proponents of this move have defended this raise by highlighting that the excess revenue generated shall be directed towards education and health facilities for Below Poverty Line families.
The second point worth highlighting is the standard deduction which has been reintroduced in the Act. As per this clause, a uniform deduction of Rs.40,000 may be made by salaried employees. To make it a cake-walk, no documents are required to be attested to claim the same.
Yet, several other allowances for salaried employees such as transportation allowances worth Rs.19,200 and medical reimbursement worth Rs.15,000 which adds up to Rs. Thirty-four thousand three hundred have been withdrawn. As a consequence, the net benefit accruing to salaried employees shall be a meagre amount of Rs.5,800.
LONG TERM CAPITAL GAINS
The fourth important element of this Act is the Long Term Capital Gains (LTCG). The Act has taken a major step by taxing LTCG held for more than 12 months and where the amount of such gains exceeds Rs.1,00,000 at a rate of 10 per cent.
The next notable point is regarding the indexation benefit. The Act has removed all indexation benefit which the past few Financial Acts promised. Indexation benefit is the rebate a person gets, which amounts to the difference between the original price of the asset and the inflated value. Interestingly, all the shareholders of listed shares must pay the Securities Transaction Tax on the purchase of such shares and even on capital gains from other assets. Evidently, the benefits of Chapter VI-A can be longer be availed.
LONG TERM CAPITAL GAINS
Precisely on this point, section 54EC of the Income Tax Act provides an exemption to the taxpayers on long term capital gains. However, the definition of such gains has now been limited only to land, building, or both, thereby severely narrowing down the scope of capital gains exemption.
ENHANCED DEDUCTIONS FOR SENIOR CITIZEN
The seventh ‘must know’ point concerns the enhanced deductions for senior citizens. The net deductions for senior citizens from the interest income took a humongous leap from Rs.10,000 to Rs.50,000. Moreover, this Act focused more on senior citizens and dedicated several provisions tailor-made for them. Few of them provided exemptions for health care, check-ups, and health insurance premium and raised them from Rs.30,000 to Rs.50,000. In addition to this, there were exemptions provided for the treatment of some specified diseases. Even here, the senior citizen category was further sub-divided into senior citizens and very senior citizens. For the former class, the exemption ceiling was Rs.60,000 while that of the latter class was fixed to be Rs.80,000.
More to the point, the needs and interests of non-salaried individuals have also been taken care of. The standard withdrawal or the tax-free withdrawal from the National Pension Scheme (NPS) of up to 40% can now also be availed by the non-salaried individual. This will enable the subscribers of both the classes (salaried and non-salaried) to have an equal playing field.
One of the most important features of this Act is the amendment to the procedure for income tax returns. Earlier, the returns were made by the IT authorities in the form of 26AS/16A/16. This form provided that even in cases where all the requisite documents have been filed by a taxpayer, the authorities could demand additional documents. However, this provision has been eliminated following the status quo that if the documents have been filed correctly, no additional formalities can be demanded.
Lastly, the much beneficial provision of section 87A, which provided marginal lower payment of tax to individuals earning below the specified amount, cannot be availed anymore. The Act has extended this benefit only to specified capital gains, which again, has a very narrow ambit.
In light of the surrounding facts and circumstances, it is certainly evident that genuine attempts have been made to simplify the whole procedure. Yet, with the removal of several benefits, the increase of exemption slabs has not been of many effects.