Budget 2018 – Impact on Personal Finance and your Investments

Continuing with the traditions of reform-oriented policies of Modi Government, that was the message of Budget 2018.

The thrust remains on bolstering infrastructure, healthcare, housing, agriculture, rural development, and social well-being. This will translate into better business growth and higher corporate profits.

It is our considered view that this budget is optimally balanced. There is equal emphasis on developments and social welfare, while keeping a close eye on fiscal prudence.

Now, briefly, we will try to understand the impact of some important budget provisions for Personal finance and what kind of impact this will have on your investments.

1. File income tax returns on time – If you don’t, the tax exemption benefit you get under 80C for investing in EPF, PPF, ELSS, NPS, and health insurance premium will be withdrawn. If you are an individual and salary-earner, do file your annual taxes by 31^st
2. Dividend distribution tax – There will be tax of 10% on dividend distribution of equity oriented funds from April 2018. The tax will be deducted at source.
3. Long term capital gain (LTCG) – Budget has proposed 10% tax on capital gains made for investment more than 1 year old from 1^st April 2018. This tax has been introduced after a gap of 14 years, we have analysed detailed impact of this on your investments here, do read.
4. Senior citizen FD interest rate exemption – Senior citizen can rejoice. Interest earned up to Rs. 50K on fixed deposits will be exempt from tax – up from the current 10K. This move will give solace to many senior citizens, many of whom are unwilling to risk exposure to equity.
5. Senior citizen health insurance premium deduction – Senior citizens can avail more benefits under section 80D now. The limit for premium deduction has been increased to 50K from present 30K. This will translate to tax benefit of around 15K for someone in 30% tax bracket.
6. Critical care – Senior citizens can spend up to Rs. 1 lakh on critical care for certain illnesses and get a deduction in income u/s 80 DDB.
7. Pradhan Mantri Vaya Vandana Yojana – The pension scheme meant for senior citizen has improved. Every senior citizen can invest up to Rs.15 lakhs now (increased from 7.5 lakhs) and get assured returns of 8.3%. Albeit, this income is taxable. The Senior citizen saving scheme also offers similar 8.3% returns. The scheme will be open till March 2020.
8. Standard deduction of 40K for salaried individuals – To help salaried individuals, Budget 2018 announced a standard deduction of Rs. 40,000. That said, tax benefits on transport allowance and medical reimbursements to the tune of Rs. 34,200/- has been removed. In effect, a person in the 30% tax bracket gets a benefit of a few thousands by way of tax savings.
9. Real estate capital gains – When you sell immovable property, you can now claim an exemption of capital gain of up to Rs. 50 lakhs by investing the funds in REC, NHAI bonds. The holding period used to be 3 years. Now you need to keep your investment in these bonds for 5 years to enjoy a tax exemption.

The bottom line: The budget is an event that will impact us every year in different ways. This shouldn’t change your basic investment philosophy.

For a personal assessment of how this budget affects you, please feel free to get in touch for a free consultation.