Mar 26

Income Tax AY 2019-20: Everything you need to know

Every budget brings some changes to tax laws every year and budget 2018 was no different. The changes brought in Budget 2018 are applicable form 1st April 2018 i.e. AY 2019-20. The due date for filing the returns for 2019-20 is fast approaching and here are some major changes that Budget 2018 has made which will affect the computation of your income.

1. Reintroduction of Standard Deduction

Budget 2018 has introduced standard deduction of Rs 40,000 for salaried tax payers. The good thing is this would be applicable for pensioners too.

With introduction of standard deduction, exemption with respect to transport allowance and medical reimbursement would no longer be available. Currently the transport allowance was exempt up to Rs 19,200 and medical reimbursement up to Rs 15,000.

Net of these allowances and introduction of standard deduction salaried tax payers have additional tax exemption of only Rs 5,800.

2. Cess on Taxes hiked to 4% (Health and Education Cess)

There is no change in the income tax slabs in Budget 2018.

However from AY 2019-20 the existing Cess of 3% (Education, Secondary and Higher Education Cess) has been increased to 4% and named as Health and Education Cess.

3. Reintroduction of Long term capital gains tax on stocks and equity based mutual funds

Budget 2018 has reintroduced long term capital gains tax of 10% + Cess (i.e. 10.4%) on gains made of sale of equity or equity oriented mutual funds. To qualify for long term capital gains the stocks/mutual fund should have been held for at least 12 months. However the capital gains up to Rs 1 lakh is exempt.Cost for working out the LTCG will be the actual cost of acquisition or the market value as on 31st January 2018 or the full value of the consideration received or accrued  whichever is  lower. Effectively, the gains accruing prior 31-01-2018 is not taxable.

4. Dividend distribution tax on Equity mutual funds

Starting AY 2019-20 the dividends from equity mutual funds would attract dividend distribution tax of 10%. However the dividend received would be tax free in hands of investor. This is mainly to equate dividend and growth plans of equity mutual funds.

5. Increased tax exemption on interest income for senior citizens (80TTB)

Budget 2018 has introduced a new section 80TTB according to which senior citizens would be able to claim interest income up to Rs 50,000 as tax exempted income; Benefits u/s 80TTA is not available to senior citizens.

However  the benefit u/s 80TTA providing tax benefit on interest received on savings bank account will be available to others.

6. TDS limit on interest income increased for senior citizens u/s 194A

There is TDS (tax deduction at source) for almost all sources of income. However as a relief to senior citizens Budget 2018 has raised the limit for TDS on interest income from Rs 10,000 to Rs 50,000. So TDS would  be applicable for senior citizens only if the annual interest income from a bank/post office is more than Rs 50,000.

7. Tax deduction for Single Premium Health Insurance Premium

In case assesses buy single premium health/medical insurance policy covering multiple years, the tax exemption u/s 80D would be available proportionately for all the years. For e.g. if you pay Rs 1,00,000 premium for a health policy covering for 5 years, you can claim Rs 20,000 tax exemption every year for 5 years subject to limits.

8. Increased deduction for medical insurance premium u/s 80D for senior citizens

The Medical Insurance premium and the preventive health check-up limit for senior citizens under section 80D has been increased from Rs 30,000 to Rs 50,000. This is good news in keeping with the ever increasing health care and related insurance costs.

9. Increased deduction for medical treatment u/s 80DDB for senior citizens

The deduction for medical treatment of specified critical illnesses have been increased to Rs 1 Lakh. Earlier the limit was Rs 60,000 for senior citizens and Rs 80,000 for very senior citizens. Following illness are covered under section 80DDB:

  • Neurological Diseases
  • Parkinson’s Disease
  • Malignant Cancers
  • AIDS
  • Chronic Renal failure
  • Haemophilia
  • Thalassaemia

10. Long Term Capital Gains Bond only eligible for capital gains from property

From AY 2019-20, the long term capital gains tax exemption by investing in long term capital gains bond from specified companies (NHAI, REC or PFC) u/s 54EC would only be available for capital gains from sale of property including land, residential or commercial building. Until this year, these bonds could be used for capital gains arising from sale of any asset.

11. Long Term Capital Gains Bond maturity increased to 5 Years

The maturity period for Long Term Capital Gains Bond has been increased from 3 years to 5 years. This would make these bonds less attractive. Remember the interest rate is just 5.75% and the interest received is fully taxable.

12. Extension of Partial Tax-exemption on NPS withdrawal to self-employed

Until now 40% of NPS corpus on withdrawal was tax exempted for employees. However from FY 2018-19 this benefit has been extended to all NPS accounts.

The above changes would be applicable for the AY 2019-20. So make a note of the above and plan your investments and taxes accordingly.

DISCLAIMER: While every effort has been taken to provide correct information, the authors/ publishers will not be liable for any loss, expense, liability, detriment or deprivation suffered arising out of any action based on the information provided above. The readers are expected to cross-check the facts and information with government circulars and notification.

ByPadmanathan KV

A Qualified Chartered Accountant based at palakkad. He is a partner at K.V.Venkitaraman & co., Chartered Accountants, specializing in the field of Income Tax and GST advisory, audit and litigation. He has represented his clients before various forums such as Income tax and GST officers, Comiissioner (appeals), Income Tax tribunal, Authority for Advance Ruling and so on. He has written numerous articles, some of which are published in reputed law reports such as GST Law times, taxmanagementindia, etc. He has delivered various papers on Income Tax and GST on various forums such as ICAI, ICMAI and other professional bodies. He is also a Faculty for ICMAI Chapter, palakkad for Direct and Indirect Taxes.