The tax year is nearing its end and one has a lot on the plate to address in terms of planning to optimise tax liability. It is an opportune time to start collating the tax proofs and, if required, to make certain tax saving investments.
While doing financial planning, it is imperative to keep in mind the key changes which were introduced in this year’s Union Budget.
This year tax slabs did not change vis-a-vis last year; the lowest tax rate continued at 5 percent and the maximum was retained at 30 percent. However, Secondary and Higher Education Cess of 3 percent was replaced with a 4 percent 'Health and Education Cess', with the objective to address the education and health needs of poor and rural families. As a result, the maximum marginal rate of tax for the tax year 2018-19 increased to 35.88 percent versus 35.535 percent in the preceding tax year.
Investors also need to bear in mind that the deduction from long-term capital gains available under Section 54EC of the Income Tax Act, 1961, has undergone a change this year. The deduction was available in case of transfer of any long-term capital asset till last year. Effective this year, deduction under this section is restricted to transfer of land and building only. It is important to note that exemption under this section is available for investment in bonds issued by National Highways Authority of India (NHAI) or Rural Electrification Corporation Limited (REC) or any bond as notified by the central government, issued on or after 1 April 2018, and redeemable after five years.
Senior citizens can also avail a higher deduction of up to Rs 50,000 for payment of health insurance premiums. Till last year, the deduction was restricted to Rs 30,000. With medical facilities in India becoming expensive, the increased deduction will motivate senior citizens to take higher insurance cover, which can help meet their expenses in times of need.
In addition to above, the limit of deduction with respect to expenditure incurred on medical treatment of specified diseases (e.g. malignant cancers, chronic renal failure, haematological disorders, etc.) in case of senior citizens, has been increased to Rs 1 lakh. Deduction available until last year was Rs 60,000 in case of senior citizens and Rs 80,000 in case of very senior citizens.
The above changes have an important bearing on the taxable income of individuals. Hence, due attention needs to be given to them before making any investments. Judicious utilisation of tax saving avenues provided under the statute is the best way to increase post-tax income.
The writer is Partner with Deloitte India. Views are personal.
First Published: IST