What are the top 10 impacts of the Budget 2018 for the common man?

http://blog.advantagefp.in/top-impact-budget-2018-common-man/What are the top 10 impacts of the Budget 2018 for the common man? By Taresh Bhatia

The Finance Minister of India, Mr Arun Jaitley presented the Budget 2018 at 11 am today (1st Feb. 2018). There were a lot of high hopes and expectations since this was going to be the populist budget in the real sense of this government. The next year's budget is more of a formality as the final budget gets passed after the new government would be sworn- in next year.

I would like to give a financial planner's perspective here for the Budget 2018.The top implications for the common man.

Budget 2018 Simplified.

As a financial planner, I have analysed the entire budget and have presented the most important and relevant implications of the Budget 2018.

While I presented my views on a popular Hindi new website today, my focus was the common man and what is his expectations.

There may be many views but here is a simple version of the Budget 2018.

From only personal finance and investment perspective, I am highlighting the most essential points of this budget only. These salient features are of significant importance to an ordinary man from a financial planner. Hence, I have tried to bring it in very plain and simple. Here are the top features:

 

  1. Income Tax Act Rates: Section 80C: While most of the people expected welcome changes, there is, however, no change in the tax rate of the Section 80 C deductions. Positive.
  2. Long-term-capital-gains: (LTCG): It was being speculated already that various slabs would be introduced in this budget. But only one flat slab new rate has now been introduced. Till now, it was flat Zero % on all equity investments like equity mutual funds, shares, stocks, balanced funds, Arbitrage funds and equity savings funds. Now, the new 10 % slab shall apply on all capital gains, above Rs one lac and above,  on all these mentioned equity-oriented investments. Moreover, there shall be zero indexation benefit which was available for all equity oriented investments.

    It appears that our finance minister has found a new term “grandfathered”! So, he says, that all capital gains up to 31.1.2018 shall not be taxed as a cost of their acquisition shall be taken as the fair market value as on 31.1.2018 and has been called as “grandfathered” investment benefit. Debate continues on this new method of calculation, and it would be seen in the next few days as to how the interpretations are taken up by people and mostly by the mutual fund houses. In short, it is effective immediately. Moreover, as a financial planner, I would say, do not panic. Plan your investments more wisely. See detailed analysis at the end of this report to understand how one can benefit from SIP and a lump sum to avoid taxation at all! Negative.Read more with this sample illustration here: Here, you will observe that if you make a lump sum investment of about Rs. 8,25000/- with assumed 12 % return in an equity oriented mutual fund, then after 12 months, it may turn out to be tax-free!No LTCG (See illustration-A)

    http://blog.advantagefp.in/top-impact-budget-2018-common-man/

    Illustration-A

    Then, if an investor has made a monthly systematic investment plan (called as SIP) for Rs. 10,000/-, then approximately up to 41 months or 3.5 years, his income generated may not attract any LTCG (long-term capital gains) like we have tried to explain in the following illustration titled "Illustration-B".

    http://blog.advantagefp.in/top-impact-budget-2018-common-man/

    Illustration-B

    Note: there are assumptions and examples given only to illustrate the point and not any kind of assurances. This is only for educational purposes only. For more information, contact a qualified financial planner or make a session booking with us at http://www.advantagefp.in
    Note: There is a recent update and we have made that in this blog later on 3rd Feb, 2018 at 7 pm. You can read about that update under section "updates"

  3. Short-Term-Capital-Gains (STCG): No change has been announced on this part. 15 % is the current STCG on your investments. In fact,  from 15 % to 10%, you don’t gain much by trying to save LTCG now! Just a difference of 5 % won’t make a huge difference. Positive.
  4. A New tax has been now introduced! It’s a tax of 10 % on the amount of dividends received on equity investments if you have chosen dividend option. All the equity-oriented investments mentioned earlier shall now be subject to this tax, before they reach the investor. It means that the mutual fund company shall deduct flat 10% (plus surcharge) before giving out the dividend. It was not there in equity-oriented investments and was there in debt investments. So, this new deduction on your dividends shall further eat away your effective returns. You cannot claim it back in any way also. Negative.
  5. A new standard deduction has been introduced! For all salaried employees only. Rs. 40,000/- deduction shall be for all salaried. Positive.
  6. The benefit of transport allowance of Rs. 19,200/- and also the medical reimbursement of Rs. 15000/- available to salaried employees only ( Section 17 (2), has now been withdrawn. That’s a total of Rs. 34,200/- and after the new Rs. 40,000/- benefit, it actually comes to only Rs. 5800/- ( Rs. 40,000/- less 34200/-). Neutral.
  7. Real Estate Capital Gains Bond New Feature: For those trying to take the benefit of selling your land or building, you were availing the benefit under Section 54EC. This has now been restricted only to real estate and furthermore, the holding period for such investment has been increased from current 3 years to 5 years. Neutral. Section 54EC of the Act provides that capital gain, arising from the transfer of a long-term capital asset, invested in the specified long-term asset at any time within six months after the date of such transfer, shall not be charged to tax subject to certain conditions specified in the said section. The section also provides that “long-term specified asset” for making any investment under the section on or after the 1st day of April 2007 means any bond, redeemable after three years and issued on or after the 1st day of Apri 2007 by the National
    Highways Authority of India or by the Rural Electrification Corporation Limited; or any other bond notified by the Central Government in this behalf. In order to rationalise the provisions of section 54EC of the Act and to restrict the scope of the section only to capital gains arising from long-term capital assets, being land or building or both and to make available funds at the disposal of eligible bond issuing company for more than three years, it is proposed to amend the section 54EC so as to provide that capital gain arising from the transfer of a long-term capital asset, being land or building or both, invested in the long-term specified asset at any time within a period of six months after the date of such transfer, the capital gain shall not be charged to tax subject to certain conditions
    specified in this section. It is also proposed to provide that long-term specified asset, for making any investment under the section on or after the
    1st day of April 2018, shall mean any bond, redeemable after five years and issued on or after the 1st day of April, 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf. This amendment will take effect, from 1st April 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.
  8. PAN mandatory: Now the directors, partners, members of all entities including HUF, shall need to obtain PAN necessarily. For all transactions above Rs. 2,50,000/. Income Tax Filing: You will have to pay a new fine of Rs. 500/- per day if you don’t file your income tax return as required under section 285BA. Furthermore, there shall be no adjustment possible under section 143 (1) while your returns were sent for processing on account of the mismatch with 26AS and 16A.If the return is not filed within the due dates, the entire deductions under the chapter VI, including section 80C, D shall not be allowed. Positive.
  1. For senior citizens, exemption of interest income on bank deposits raised to Rs 50,000/-; Rs. 50,000/- income tax deduction has now been introduced for our Senior Citizens. Positive. Medical Deduction available for senior citizen has now been increased from current Rs. 30,000/- to Rs. 50,000/-. Positive.
  2. Medical premiums benefit under section 80 D deductions has now been allowed proportionately for those paying premium for more than 1 year at a time or paying in advance.

 
Clarification on the key tax proposals in the Union Budget 2018- refer finance bill for detailed clarity (Below was updated on 3rd February 2018: 6 pm)

 
A.     Long-Term Capital Gains Tax
·         Tax Rate: Capital gains over Rs. 1 lakh to be taxed at 10% (no indexation benefit).
·         Asset class: On listed equity shares, equity-oriented mutual funds and units of a business trust
·         Method of Calculation: Any notional gains till Jan 31, 2018, are proposed to be exempted in calculations for long-term capital gains
·         Applicability: From April 1, 2018, as per Finance Bill 2018
 
Investment Implications
·         For redemptions done on Feb 1, 2018 – March 31, 2018: No LTCG Payable
·         For redemptions done April 1, 2018, onwards, LTCG payable on the difference in (i) value between Jan 31, 2018, or cost of acquisition, whichever is higher; and (ii) Sell Date
·         Example: Assuming a stock bought for Rs 100 on July 1, 2017, market rate on Jan 31, 2018, is Rs 150, sold on June 30 for Rs 180, LTCG payable in FY18-19 will be on Rs. 30 (Rs. 180- Rs.150).
·         Tax applicable to FPIs as well (under section 115AD), subject to tax treaty benefits if any
 
B.      Dividend Distribution Tax on Equity Mutual Funds:
 
Announcement:
·         Tax Rate: Dividend Distribution Tax of 10% introduced on Equity oriented Mutual Funds
·         Applicability: From April 1, 2018, as per Finance Bill 2018
 
Investment Implications:
o   All dividends received after April 1, 2018, to be taxed at 10% (payable by the AMC). Not taxed in the hands of the recipient.
http://blog.advantagefp.in/top-impact-budget-2018-common-man/
http://blog.advantagefp.in/top-impact-budget-2018-common-man/
Summary: As a financial planner, I have given a score of 5 on 10 to this budget. I am positive on the 5 out of the 10 important features. We, as financial planners, make provisions for such movements in money and transitions happening for our investors. The budget has always been a day of expectations and not getting major reliefs! I expected it to be a favouritism budget, just trying to please the masses. Personal financial planning and investments should always be done with assumptions and revised year to year. One time advice doesn’t help investors in the long term, especially when tax regime may change. Income tax calculations are always outside your control, but you can always control where you invest and for how much time. It does matters to you also as an investor! Happy Investing.

Now, I shall highlight other major features of the budget but separately.

  1. Cryptocurrencies shall be brought under the tax ambit. The government will take all steps to eliminate the use of cryptocurrencies which are funding illegitimate transactions. Positive.
  2. National Insurance, United India Ins & Oriental Ins-Insurance companies being merged into one; shall bring more transparency, fewer expenses, less cost to customers and bring down the cost of buying general insurance products from them. Positive.
  3. Disinvestment of public sectors shall make them more cost-effective and reduce public liability. Masses to benefit. Positive.
  4. Mobile phones set to become costlier as customs duty on them has been increased to 20 percent. Negative.
  5. Health and education cess have been increased to 4 percent from current of 3 %. Negative.
  6. Tax rate reduced to 25% for companies having turnover Up to 250 Cr.
  7. Government to contribute 12 percent of EPF contribution for new employees in all sectors.
  8. Govt will launch health scheme to cover 10 crores, poor families. The Government is slowly but steadily progressing towards universal health coverage.
  9. The government aims to bring 60 crore bank accounts under the Jan Dhan Yojana.
  10. Eklavya schools to be started for Scheduled Tribe populations: Finance Minister.
  11. Rs 600 crore allocated to Tuberculosis patients undergoing treatment.
  12. Govt will set up two new Schools of Planning and Architecture.
  13. To tackle brain drain, Jaitley announces the scheme to identify bright students pursuing B Tech in premier engineering institutes, and providing them higher-education opportunities in the IITs and IISc. These students will receive handsome fellowships and will be expected to dedicate a few hours to teach in higher education institutions weekly.
  14. Ujjwala scheme to amplify targets will now provide 8 crore rural women, free LPG connections.
  15. Air pollution in Delhi-NCR has been a cause for concern, govt has proposed subsidised machinery for in-situ management of crop residue in Punjab, Haryana, Uttar Pradesh and NCT Delhi.
  16. Govt of India will take necessary measures to put in place measures for the state government to purchase surplus solar power produced by local farmers at suitable prices.
  17. a sum of Rs 500 crore for 'Operation Green' on the lines of 'Operation Flood’.
  18. National health Protection Programme for 10 Cr Poor Families.
  19. 5 Lakh per family per year for 10 crore families will be allocated.
  20. Allocate 1200 crore for specialised health wellness centres.
  21. Projects under the “Namami Gange” Programme have been completed.
  22. Allocate Rs. 1.38 Lk Crore in FY 19 For Govt health & Educational Programmes.
  23. Women Contribution to EPF to be reduced to 8% for first 3 years.
  24. Gold monetisation policy to be revamped to make it investment friendly.
  25. To Set up comprehensive gold policy 

Furthermore, I am happened to be a part of an expert panel giving a live opinion on the website of India's leading Hindi daily: the Dainik Bhaskar from 11 am to 1 pm. I  am glad that I was invited to this live TV show as it was also my debut appearance. Watch here:

Part 1- https://www.youtube.com/watch?v=00TrkPrGhKs
Part 2- https://www.youtube.com/watch?v=tNdVgaNHKWg
Part 3- https://www.youtube.com/watch?v=oFq5pj0Y2JU
Part 4- https://www.youtube.com/watch?v=Vmfu7kbQASs
Part 5- https://www.youtube.com/watch?v=561j52mLAXQ
Part 6- https://www.youtube.com/watch?v=Z3qhXUk8DSk
Part 7- https://www.youtube.com/watch?v=EWcb5xosToQ
Part 8- https://www.youtube.com/watch?v=l1D4s5jwYZc

Earlier in the day, my Budget Announcements expectations were: (at 9 am-1st ebruary, 2018):

While I am also excited to listen to the finance minister of India giving his budget speech one month early, I have made the following summarised version of what to expect from a common man’s point of view; personal finance impact only pointed here:

* Income Tax Slab is being Revised to 300,000

* No Introduction of Standard Deduction

* Announcement of Universal Health Scheme

* Corporate Tax is being Linked to Employment Generation

* Re-introduction of 10% Income Tax Rate

* Big Announcement on Farmers

* LTCG is coming back with some pre-conditions(High Income Generation from Capital Markets)

The buzz on LTCG:

Till 1 year: 15% Tax

1 yr to 2 yrs: 10% Tax

2 yrs to 3 yrs: 5% Tax

More than 3 yrs: NIL

Cost of investments will be readjusted to the closing price on January 31, 2018

Do read my new budget highlights blog: http://blog.advantagefp.in/top-impact-budget-2018-common-man/

Which shall be giving:

1.Key Highlights of Budget

2. Key announcements impacting Personal Finance space

3. Your questions on Budget and its Impact on you

 

(Updated as on 9 am: 1st February 2018)