Five tax changes that kick into effect this financial year
What's the story
A new financial year starts today, and with it, several new norms for taxpayers.
Though some will bring more benefits to certain individuals/firms, others might work in the opposite direction.
But the meaning and effect of each should be understood so taxpayers can make informed choices and use the best combinations to increase earnings.
Here are five changes that kick into effect this year.
Standard deduction
Higher standard deduction for salaried taxpayers
Salaried taxpayers now have a standard deduction of Rs. 40,000: this amount will be deducted before calculating taxable income.
However, transport allowance of Rs. 19,200 and medical expenses of Rs. 15,000 are no longer tax-free.
Hence standard deduction has effectively gone up from Rs. 34,200 to Rs. 40,000, so the real maximum gain will be Rs. 5,800, depending on your tax slab.
Cess
Higher education and health cess will impact benefits
There are other changes that will eat into the new increased standard deduction. For example, health and education cess have increased from 3% to 4%.
In fact, for some slabs, after adjusting the new deduction and the cess, the net tax liability will instead increase.
Paperwork is also set to come down as there will be no bills to claim allowances.
Seniors
Senior citizens will enjoy higher interest income exemptions
In good news for senior citizens, the limit on tax exemption on interest earnings had gone up by as much as Rs. 40,000 - from the previous Rs. 10,000 to Rs. 50,000.
This will apply to fixed deposits and all other types of deposits in banks and post offices.
A senior citizen is a resident of India aged over 60 years.
Corporate tax
Bigger companies to now face lower corporate taxes
Certain companies will also enjoy reduced taxes. For those with annual turnovers of up to Rs. 250cr, the corporate tax will now be 25% instead of the previous 30%.
This rate was till now applicable to only those companies with turnovers of up to Rs. 50cr.
The e-way bill is also coming into effect today, aimed at bringing down evasion of the recently introduced GST.
LTCG
Impact of the new LTCG to be felt immediately
The impact of the new long-term capital gains (LTCG) tax is expected to be felt immediately.
The LTCG is a 10% tax on any amount gained over Rs. 1L, on shares bought more than a year back. Higher the gain, more the exchequer earns.
For calculation of gains, price of a stock as of January 31 will be taken as base.