Income Tax 2018-19 – Changes for Salaried Employees and Pensioners

Income Tax Structure 2018-19 and important Changes in Income tax exemption and deductions made for Salaried Class Tax Payers

Income Tax 2018-19 – Exemptions withdrawn and allowed for Salary income during the financial year 2018-19 (Assessment Year 2019-10) – Changes for Salaried Employees and Pensioners

Now that another Income Tax Assessment Year came in to effect and Salaried Employees will need to calculate the income tax to be paid them for financial year 2018-19, so that they can spread the burden throughout the year instead of ending up paying entire salary as income tax in February.

Here is a summary view on new or additional income tax exemption / deduction allowed by Govt for the Salary Income earned in the year 2018-19.

1. Income Tax 2018-19 on Salary Income and Pension

Income Tax Slab Tax Rate Cess Rate
Income up to Rs 2,50,000* Nil 4% on Income Tax
Income from Rs 2,50,000 – Rs 5,00,000 5% 4% on Income Tax
Income from Rs 5,00,000 – 10,00,000 20% 4% on Income Tax
Income more than Rs 10,00,000 30% 4% on Income Tax

 

2. Income Tax Slab for Senior Citizens (60 Years Old Or More but Less than 80 Years Old)

Income Tax Slab Tax Rate Cess Rate
Income Tax Slab Tax Rate 4% Income Tax
Income up to Rs 3,00,000* No tax 4% Income Tax
Income from Rs 3,00,000 – Rs 5,00,000 5% 4% Income Tax
Income from Rs 5,00,000 – 10,00,000 20% 4% Income Tax
Income more than Rs 10,00,000 30% 4% Income Tax

 

3. Income Tax Slab for Senior Citizens(80 Years and above)

Income Tax Slab Tax Rate Cess Rate
Income Tax Slab Tax Rate 4% on Income tax
Income up to Rs 5,00,000* No tax 4% on Income tax
Income from Rs 5,00,000 – 10,00,000 20% 4% on Income tax
Income more than Rs 10,00,000 30% 4% on Income tax

Surcharge: 10% and 15% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore and exceeds Rs. 1 Crore respectively.

4. Income Tax Relief under Section 87A:

Income Tax Relief of up to Rs. 2500/- under Section 87 A has been retained in respect of Tax Payers whose Taxable Income does not exceed Rs. 3.5 lakh.

5. Increase in Income Tax Cess which is now called as Health and Education Cess from 3% to 4%:

It may affect tax payer to a minimum extent as Govt has brought Health Cess in addition to Higher Education Cess of 3% on Income Tax so far.

In the the financial year 2018-19, all Income Tax Payer will have to pay 4% Health and Education Cess on the Income Tax payable by them.

6. Standard Deduction from Salary Income Reintroduced:

In order to reduce Income Tax burden for Salaried Employee to some extent, Govt has reintroduced Standard Deduction up to Rs. 40,000. But salaried employees get this standard deduction at the cost of withdrawn exemption on Transport Allowance to the extent of Rs. 19,200 /- and Medical Reimbursement which was exempted up to Rs. 15,000.

Hence, net increase in Income Tax Exemption that Salaried Employees get this year is only Rs. 5800/- taking in to account reintroduced Standard Deduction and withdrawn exemption on Transport Allowance and Medical Reimbursement.

7. Income Tax Exemption under Section 80 for Medical reimbursement withdrawn:

Till the FY 2017-18, Medical Reimbursement allowed by Employers on the basis of medical bills submitted by Employees was tax free up to Rs. 15,000 under Section 80 D of Income Tax Act. Now this exemption has been withdrawn.

8. Transport Allowance is no longer exempted:

Budget 2018 proposed that Income Tax Exemption on Transport allowance payable to Salaried Employees will be withdrawn. This is Another income tax related change introduced in the budget 2018 which will increase tax burden of Salaried Employees

9. Interest Income up to Rs. 50,000 is exempted in respect of Senior Citizens – Section 80 TTB:

Senior citizens and especially pensioners many of whom rely on interest income to meet their expenses will rejoice on this income tax change. The exemption limit on income from interest for those over 60 has been hiked five times from Rs 10,000 to Rs 50,000 per year. All deposits held by senior citizens across both banks and co-operative banks, as well as post offices will be eligible for this exemption.

10.TDS limit on interest income increased for senior citizens u/s 194A

There is TDS (tax deduction at source) for almost all kind of income. However as a relief to senior citizens Budget 2018 has raised the limit for TDS on interest income from Rs 10,000 to Rs 50,000. So TDS would only be applicable for senior citizens if the annual interest income from a bank/post office is more than Rs 50,000.

11. Income Tax Exemption Limit on Health Insurance for Senior Citizens increased – Section 80D:

Another important benefit extended to senior citizens is that of the higher limit of deduction for health insurance premium and medical expenditure. This amount has been raised from Rs 30,000 to Rs 50,000 under Section 80D of the Income Tax Act.

12. Tax deduction for Single Premium Health Insurance Premium

In case assesses buy single premium health/medical insurance policy covering multiple years, the tax exemption u/s 80D would be available proportionately for all the years. For e.g. if you pay Rs 1,00,000 premium for a health policy covering for 5 years, you can claim Rs 20,000 tax exemption every year for 5 years subject to limits.

13. Income Tax deduction for expenses incurred for medical treatment of Senior Citizens increased – Section DDB:

The deduction limit for medical expenses for specified critical illnesses under section 80DDB, has been hiked to Rs 1 lakh for all senior citizens from Rs 60,000 (in case of senior citizens) and Rs 80,000 (for super senior citizens).

  • Neurological Diseases
  • Parkinson’s Disease
  • Malignant Cancers
  • AIDS
  • Chronic Renal failure
  • Hemophilia
  • Thalassaemia

14. NPS exemption for the self employed

Till date, only salaried employees were allowed withdraw up to 40% of their total accumulated corpus from the National Pension Scheme (NPS) at maturity or account closure, without any tax implications. But now, self-employed subscribers are also eligible for this benefit. This move will bring non salaried subscribers of the NPS on par with salaried employees.

15. Longer lock-in for bonds under 54EC

The Union Budget has extended the lock-in period of investments in capital gain tax exemption bonds from three years to five years. This will affect Tax Payers who have invested their savings in Income Tax Exempted Bonds under Section 54EC.

16. Dividend Distribution Tax imposed on equity mutual funds

Salaried Employees normally invest in Tax Saving Mutual Funds which is popularly called as ELSS. If a tax payer has invested in Equity Mutual Funds that distribute Dividend instead of reinvestment, which was earlier exempted under Income Tax is now coming under Income Tax levy.

While dividends will remain tax free in the hands of the investor, the fund house will have to pay 10% tax on income distributed to investors. This is an indirect form of TDS as the fund house is going to reduce the NAV as a result of this administrative expense.

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