Partnership firms and limited liability partnerships (LLPs) will be put at a disadvantageous position by Finance Minister Arun Jaitley’s Budget announcement to cut corporation tax rate by 5 percentage points to 25 per cent for all micro, small and medium enterprises (MSMEs). The Budget for 2018-19 kept big corporates out of this cut, proposed by finance minister three years ago.
While announcing the government’s expenditure for the fiscal year 2018-19, Jaitley had said that including companies with a turnover of up to Rs 250 crore will benefit the entire class of MSMEs which accounts for almost 99% of companies filing their tax returns. He said that the estimated foregone revenue due to this measure is Rs 7,000 crore during the financial year 2018-19 and out of the 7 lakh companies filing returns, only 7000 companies filing returns of income with a turnover above Rs 250 crore will remain in the 30% tax slab.
According to the micro, small and medium enterprises development act, 2006, in India, small and medium scale enterprises (SMEs) are defined as enterprises where investment in plant and machinery or equipment is between Rs. 25 lakhs to Rs. 10 crores in case of a manufacturing industry and between Rs.10 lakh to Rs. 5 Crore in case of a service sector enterprise
LTCG tax on equity investments
Arguably the biggest change implemented this financial year is the reintroduction of the long term capital gains tax on stock market investments. A 10% Long Term Capital Gains (LTCG) tax will be imposed on profits exceeding `1 lakh made from the sale of stocks and equity-oriented mutual funds that have been held for over a year. All profits made by investors up to 31 January 2018 have been grandfathered.
The budget announced a standard deduction of Rs 40,000 for salaried employees, but it also did away with the taxexempt annual transport allowance of Rs 19,200 and medical reimbursement of Rs 15,000. The difference of Rs 5,800 is the reduction in the amount of taxable salary. The tax you save on this amount will depend on the income tax slab you are in.
The main advantage of the move is that the calculation will now be much less complicated. The deduction will be made directly from your salary, and you won’t need to submit investment proof or bills to avail of the benefit.
Tax advantages for senior citizens
There’s good news for senior citizens, many of whom rely on interest income to meet their expenses. The exemption limit on income from interest for those over 60 has been hiked five times from Rs 10,000 to Rs 50,000 per year. All deposits held by senior citizens across both banks and co-operative banks, as well as post offices will be eligible for this exemption.
Another important benefit extended to senior citizens is that of the higher limit of deduction for health insurance premium and medical expenditure. This amount has been raised from Rs 30,000 to Rs 50,000 under Section 80D of the Income Tax Act. The deduction limit for medical expenses for specified critical illnesses under section 80DDB, has been hiked to Rs 1 lakh for all senior citizens from Rs 60,000 (in case of senior citizens) and Rs 80,000 (for super senior citizens).
NPS exemption for the self employed
So far, only salaried employees were allowed withdraw up to 40% of their total accumulated corpus from the National Pension Scheme (NPS) at maturity or account closure, without any tax implications. But now, self-employed subscribers are also eligible for this benefit. This move will bring nonsalaried subscribers of the NPS on par with salaried employees.
Longer lock-in for bonds under 54EC
Profits from the sale of real estate which are held for at least two years become tax-free if they are invested in specified bonds under Section 54EC. The Union Budget has extended the lock-in period of investments in capital gain tax exemption bonds from three years to five years.