Budget 2018 and You - Personal Finance Redux

Budget 2018 seems to be a pro-poor and pro-agriculture budget without any concessions for the Indian tax payers or investors.

Here are the highlights of Budget 2018 with respect to your personal finance:

  1. Personal income tax slabs remain unchanged.
    However Education cess is being increased from 3% to 4% and will be known as Education and Health cess.

  2. Standard Deduction of Rs 40,000 for salaried employees. However benefit of transport allowance of Rs 19,200 and Medical Reimbursement of Rs 15,000 under Section 17(2) are being withdrawn. Thus net benefit would be a meagre Rs 5,800.

  3. EPF
    There is some good news for new employees who will be availing Employee Provident Fund (EPF) benefits for the first time through their employer (Government or Private Sector).

EPF is a retirement benefit scheme by the government for salaried employees. The government in the new budget announced that it will also contribute 12% of your salary in your EPF for three years (if you are a new employee starting with EPF for the first time). This means extra retirement savings for you! :)

For e.g. if you earn Rs. 50,000 per month and your basic salary is Rs. 25,000 per month then you will contribute Rs. 3,000 per month (12% of your basic salary) to EPF and your employer will contribute the same amount. Now, in addition to you and your employer, the government will also contribute the same amount to your EPF for the next three years.

Also, for women, the employee contribution has been reduced to 8% from 12% with no change in employer's contribution.

  1. LTCG Tax on Equities and Equity Mutual Funds

The big change brought about by the new budget is the re-introduction of Long Term Capital Gains (LTCG) Tax on stocks and Equity Mutual Funds.

LTCG Tax was removed in FY 2004-05 budget and has been re-introduced now to bring India at par with other major economies of the world.

LTCG Tax on stocks and Equity Mutual Funds will be charged at 10% of gains exceeding Rs 1 lakh for the assessment year.

Dividend distributed by Equity Mutual Funds in their dividend payout and dividend reinvestment options will also be taxed at 10% (DDT). Earlier the dividends were also tax free.

The new LTCG and DDT taxation will be applicable from 1st Feb 2018 1st April 2018 (assessment year 2019-20) onwards i.e. on investments sold on or after 1st April 2018 (and not on sales made till 31st March 2018).

For existing investments sold on or after 1st April 2018, LTCG upto 31st Jan 2018 will continue to be tax-free and only the gains after 31st Jan 2018 will be considered under the new tax policy (so no need to sell any of your long term holdings).

Here is a table summarising the new taxation of Mutual Funds:

To help you understand the computation of LTCG tax and the effect of grandfathering of gains till 31st Jan 2018, here are some example scenarios.

You can read the full text of Budget 2018 speech by the Finance Minister here.


Provisions related to Direct Taxes, Finance Bill, 2018 (PDF)

FAQ on LTCG by Income Tax Dept (PDF)