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Important tax changes effective now

There are a few key tax changes which will impact the average tax payer. It is very important to keep track of these so as to avoid penalties and to avoid tax planning mistakes

Following are some key tax changes that have come into effect from April 1. 

  • File within deadline to save penalties

Everyone now needs to file Income tax returns within the deadline else they need to pay fines. This penalty is such that the return will not be uploaded unless you pay this.

Starting from April 1, if you file your ITR post the deadline of July 31, 2018 (unless the tax department extends it), you will be liable to pay a maximum penalty of Rs 10,000. 

As per the new law, a penalty of Rs 5,000 will be levied if the return is filed after the due date but before December 31 of that year and Rs 10,000 post December 31. However, as relief to small taxpayers, if your income is not more than Rs 5 lakh, the maximum penalty levied will be Rs 1,000. 

  • Saving tax on long term capital gains restricted: Section 54EC

Bonds issued under section 54EC for saving tax on LTCG will be issued for a tenure of five years with effect from April 1, 2018, instead of three years. Added to this, it will be possible to save tax via these bonds for capital gains arising from only land, building or both. Earlier capital gains from other assets like debt mutual funds, jewellery etc could be invested in these bonds to save tax. 

  • Tax-free withdrawal for NPS extended to self employed

Self-employed and professionals will now be able to withdraw 40 percent of their National Pension System (NPS) corpus tax-free when they close or opt out of it. Salaried employees are already allowed to withdraw 40 percent of their NPS corpus tax-free. 

  • Time limit to revise ITRs reduced

Earlier a taxpayer was allowed to revise his returns up till two years from the end of the financial year for which the return was filed. However, from now on, he will be allowed to revise his return only up till one year from the end of the financial year. 

Therefore, for the financial year ending on 31 March, 2018, a person will have time till 31 March, 2019 to revise his ITR. The normal deadline for filing return for FY17-18 would be July 31, 2018. 

  • Medical reimbursement and transport allowance to become taxable

Until and including FY 2017-18, income tax laws allowed transport allowance up to Rs 19,200 and medical reimbursement up to Rs 15,000 in a year to be claimed exempt from tax. Medical reimbursement was tax-exempt only if the actual bills were submitted to the employer but transport allowance did not require submission of bills. However, in lieu of the above allowances, standard deduction of Rs 40,000 from salary and pension will be available. You can claim this deduction next year for FY 2018-19 (assessment year 2019-20) at the time of filing ITR. 

  • Cess hiked

Starting from FY 2018-19, the cess levied on the tax liability will be hiked by 1 per cent to 4 percent, as proposed in the budget. The cess will be called 'Education and Health Cess', replacing the current 3 per cent education cess. 

  • Levy of LTCG tax on shares and equity-oriented mutual funds

LTCG from the sale of shares and equity-oriented mutual funds will attract tax at a flat rate of 10 percent. Indexation benefit (adjusting the purchase cost with respect to inflation) will not be available. Further, LTCG up to Rs 1 lakh in one fiscal will be exempted from tax.

  • Equity oriented mutual funds to pay dividend distribution tax

Dividends declared in equity-oriented mutual fund schemes will come under the purview of dividend distribution tax (DDT) with effect from April 1. The tax will be levied at 10 percent and will be deducted by the fund house before paying dividends. 

  • Senior citizens to get more benefits

Starting from 1 April, interest income earned up to Rs 50,000 a year by senior citizens will be available for deduction. This includes interest income earned from savings bank/post office accounts, fixed deposits (FDs) and recurring deposits (RDs). This tax benefit is available to them under the newly inserted section 80TTB of the Income tax Act. TDS will be deducted only if interest income is more than Rs 50,000 in year. 

However, if you are claiming tax benefit under section 80TTB, you cannot avail it under section 80TTA. Under section 80TTA, interest earned from savings account (bank/post office) up to Rs 10,000 is exempt from tax. 

Additional benefits are also available on premium paid for medical insurance. Health insurance premium paid for senior citizens will be allowed a maximum tax-break of Rs 50,000 under section 80D. 

Senior citizens who do not have health insurance can also avail this benefit for medical expenses incurred. It is advisable to keep the prescription and medical bills handy in case the tax department might require it in the future. 

Tax benefit under section 80DDB has also been increased to Rs 1 lakh for treatment of specified diseases such as chronic kidney diseases (CKD), cancers etc. 

(Shubham is a Chartered Accountant and MBA (Finance). She is on the forum of “Economic Times” experts on Taxation.   She specialises in Individual Taxation and Taxation of Freelancers & Small businesses. She can be reached on for answering your tax related questions.)

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