The Government which is known for dropping BOMBS… today submitted their last budget before going for general elections in early 2019. Budget 2018 details have started emerging and yes the budget in full of impact. Budget 2018 will be known for Taxing the Equity Market gains. Here are the details.

Budget 2018 key highlights are here: Budget in Points

We have covered all points, all sectors & allocations above. But this article will focus on Investment & Personal Finance changes due to Budget 2018. Also below you can read my views on Budget 2018.

Budget 2018 is an extension of GST and other measures we have already seen. The government will get full marks on the front of dolling out money on social & infrastructure projects. But about these key questions?

The key questions before Budget 2018

• Will you favor agriculture or rural too much to garner votes in 2018 state elections & 2019 general elections?
• You already brought GDP from 7.5 to 6.3 by GST & Demonetization. What next?
• Will fiscal deficit targets meet? What will happen to country’s rating?
• Will you lock horns with the stock market bulls by touching LTCG or STT?
• Will AAM AADMI get some easy life? Becuase you said “Less Government & More Governance”… But Government has intensified its presence in last 3.5 years.

Discussions have entered bedrooms and dining tables.

The Answers

FM started his speech with a promise that government is committed to providing Ease of Living… but he cited examples of all previous achievements like Ujjwala, Subhagya & doing away with notary cost for students. So the struggle will continue. Better adapt to it by embracing technology.

FM launched the Indian version of Obamacare- MODICARE for 10 Cr Families – This is Medical Reimbursement of RS 5 Lakh /Per year. Huge health insurance plan could cost govt around Rs 50,000 crore annually.

The budget was balancing act between VOTES & Fiscal Prudence. It gives on one hand and takes another hand.

For Eg: Due to above scheme the Health & Education Cess has been increased to 4% from 3%.

Impact on Your Income & Investments 

 No change in Tax Rate or Section 80C limits

All persons including individuals, HUF, Firms, and Companies to pay same tax rates and the previous slabs. I also feel that Slabs Rates once announced should remain for a long time. No need to change them every year just to please few.

However, Education cess is being increased from 3 to 4 % to be known as Education and Health cess.

Long-Term Capital Gain Introduced – Effective Immediately

The impact will be on Shares, Equity MFs, Balanced Category Funds, Arbitrage Funds & Equity Savings Funds.

Long-Term Gain Tax was ZERO. Now it is 10% without any indexation benefits. So LT gains over 1 Lakh will be taxed now. However, capital gain up to 31.1.2018 shall not be taxed as a cost of acquisition will be taken as Fair Market Value as on 31.1.2018. This is called Grandfathering.

Grandfathering

If you bought any share/Equity MFs last year (and not completed 1 year) – your revised cost will be yesterday high price and not the actual price. So LTCG will be applicable at the price what you sell from now on compared with revised cost on 31st Jan 2018. The value of 31.01.2018 become the cost price.

Nothing to panic on LONG TERM GAINS…

Grandfathering actually helps the market.  NO, SELL OFF due to guys invested already if they want to remain invested in equities!

If you have bought a share @Rs 100 a year back & its 250 on 31st 2018. Now when u sell it at Rs 300.

LTGC tax will only applicable on Rs 250-300 = 50, so the tax will be Rs 5 only.

Tax on Short-Term Capital Gains to remain unchanged 15%.

This will not impact speculation or short-term investments in equity, in fact, will increase. You invest for 11 months or 13 Months, the tax difference is just 5%. Strange…

Dividend Distribution Tax 10% introduced on Equity Schemes

Will impact All Equity Funds, Shares with Dividend Yield, Balanced Funds, Arbitrage Funds & Equity Savings Funds.

Dividends will remain tax-free in hands of the investor, but MFs will deduct 10% plus surcharge before distributing. And there is no way to claim it back even if you are in 5% or nil tax bracket.

Standard Deduction of Rs 40,000 for salaried employees

However, the benefit of transport allowance of Rs 19,200 and Medical Reimbursement  of Rs 15,000 under Section 17(2) are being withdrawn. Thus net benefit to salaries class only Rs 5,800 only.

Capital Gain Bonds for only Real Estate Transactions

54EC benefit of investment in Bonds to be restricted to Capital gain on land and building only. A further period of holding being increased from 3 years to 5 years.

PAN for all If income exceeds 2.5 lakhs in a year

PAN to be obtained by all entities including HUF other than individuals in case aggregate of financial transaction in a year is Rs 2,50,000 or more. All directors, partners, members of such entities also to obtain PAN.

Provision for Filling Income Tax

No adjustment under section 143(1) while processing on account of a mismatch with 26AS and 16A.

The penalty for nonfiling financial return as required under section 285BA being increased to Rs 500 per day.

Interest Income deduction of Rs 50000 for the Senior citizen.

Exemption of interest income on deposits with banks and post offices to be increased from Rs. 10,000 to Rs. 50,000.

TDS not required to be deducted under section 194A. Benefit also available for interest from all fixed deposit schemes and recurring deposit schemes.

Proposed to extend Pradhan Mantri Vaya Vandana Yojana up to March, 2020. Current investment limit proposed to be increased to Rs. 15 lakh from the existing limit of Rs. 7.5 lakh per senior citizen.

Increase in deduction limit for medical expenditure for certain critical illness from Rs. 60,000 (in case of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to Rs. 1 lakh for all senior citizens, under section 80DDB.

Senior Citizen Mediclaim, Preventive Health Checkup & Medical Expenditure Deduction increased to RS 50000 from earlier Rs 30000.

Deduction u/s 80D for medical premiums to be allowed proportionately in cases where premiums for more than 1 year are paid in advance.

40% withdrawal will be tax free for all NPS subscribers. This was previously only for employees. Now available for all subscribers

My Views

I am very positive about the Budget 2018. The government does what it should do. We expected it to populist budget and it is.

I believe wealth management should be fundamental driven and in no way, the government can take away fundamentals. They just have the power to make or destroy the climate.

My disappointment is towards clarity. I am still not sure Aadhar’s way forward.

Many people are asking about LTCG. My question is will you not invest in equity because you need to pay 10% as tax?

Will you not take a promotion simply because your tax bracket may increase from 5% to 20%?

So investments in equity will continue. They will be disturbed in coming 10-15 days, but not forever.

Enjoy what you got… Speed past what was never meant for you.