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Union Budget 2018: what’s in store for income tax payers?

4% health & education cess proposed

The Union Budget has kept the income tax rates and slabs unchanged. However, Finance Minister Arun Jaitley chose to give relief to tax-paying individuals by announcing a standard deduction of ₹40,000 under the label of transport and medical allowance.

Mr. Jaitley also announced additional sops for senior citizens. Interest of up to ₹50,000 earned on fixed deposits by senior citizens will be exempted from taxation as against ₹10,000 earlier. TDS will not be required to be deducted under section 194A and it has been extended to all fixed deposit schemes and recurring deposit schemes.

Income tax deduction limit on health insurance premium and medical expenditures incurred by senior citizens and very senior citizens (aged 80 and above) has been increased to ₹50,000 under Section 80D.

Expenses incurred on critical illness by senior citizens will be exempted up to ₹1 lakh. Earlier it was ₹60,000 for senior citizens and ₹80,000 for very senior citizens.

The Minister also proposed to extend the Pradhan Mantri Vaya Vandana Yojana up to March 2020 and increased the limit to ₹15 lakh a senior citizen.

4% health & education cess proposed

Mr. Jaitley proposed to replace the existing 3% education cess on personal income tax and corporation tax with a 4% 'Health and Education Cess' to take care of the education and health needs of the poor and rural families.

At present, a 3% cess, consisting of 2% cess for primary education and 1% cess for secondary and higher education, is levied on personal income tax and corporation tax.

“In order to take care of the needs of education and health of BPL (below poverty line) and rural families... I propose to increase the cess by 1%. The existing 3% education cess will be replaced by a 4% ‘Health and Education Cess’ to be levied on the tax payable. This will enable us to collect an estimated additional amount of ₹11,000 crore,” Mr. Jaitley said.

Standard deduction a “nominal benefit”

Alok Agrawal, Senior Director, Deloitte India, termed the standard deduction a “nominal benefit”. “Standard deduction of ₹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 ₹1,600 p.m. is anyway leading to a total tax-free salary of ₹34,200 p.a.,” he said.