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Budget 2018: Are you richer or poorer? Here’s the bottomline

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Standard deduction has been revived, saving some tax, but that’s in lieu of medical allowance and transport allowance. It has also increased the cess on incomes from 3% to 4%, hiking your tax bill. So, what’s the net effect of these three changes?

That depends on what your income is and whether you’re salaried or not. If you’re not salaried (those on pension, for instance), the fact that the two allowances have been knocked out doesn’t hurt you. So you gain a clean Rs 40,000 deduction on taxable income.

The biggest gain from this is for someone at an income of just above Rs 10 lakh a year. With tax and cesses, such a person would now be paying Rs 1,15,875. In the new dispensation, she would pay Rs 1,08,680, thereby saving Rs 7,195. However, as your income rises, the benefit of the deduction starts being offset by the higher cess, and beyond an annual income of Rs 47,85,000 you’re more and more a net loser.

Similarly at income levels below Rs 10 lakh, the benefit is not quite as much and decreases as income does. The exception to this declining trend happens at a non-salary income of Rs 2.9 lakh. Such a person would now pay Rs 2,060 in taxes and cesses. Post this Budget, they pay nothing.

For the salaried, things are more complex. While they gain from the Rs 40,000 deduction, they lose out on the Rs 15,000 exemption for medical allowance and the Rs 19,200 deduction for transport allowance. Thus, their net gain is of Rs 5,800 on taxable income, which translates to a total saving of just Rs 1,740 on tax payable, irrespective of income. Offsetting this is the effect of the increased cess. The net gain is negligible even at fairly modest salary levels (Rs 194 at an annual income of Rs 5 lakh) but beyond an annual income of Rs 12,62,400 (just over Rs 1 lakh a month) there is a net loss. And the net loss keeps mounting from there on.

Senior citizens, however, stand to gain from a range of proposals. For example, the limit on tax-free deposits bearing high interest of 8% has been increased from Rs 7.5 lakh to Rs 15 lakh. That means you can add Rs 60,000 to your interest income annually. Those buying health insurance for their aging parents can also celebrate. The rebate on premia has been upped from Rs 30,000 to Rs 50,000, which means a tax saving of about Rs 6,000 per annum.

If you invest in equities either directly or through a mutual fund, the rebirth of the long-term capital gains tax will hurt you. Let’s say you make a gain of Rs 2 lakh from selling shares you bought more than a year ago. You will now have to give the government 10% of the amount gained over Rs 1 lakh, which in this case would mean paying Rs 10,000. The bigger the gain, the more your payout. The small mercy is that what you have gained till Jan 31 this year won’t be taxed.

Equity-oriented MFs will also now have to pay a 10% tax on any income they distribute to you, so that’s another minus for you. What about indirect taxes? Do they reduce your spending? Sadly, no. A 10% surcharge on all customs duty means imported goods will cost more.

That apart, increases in duty rates on white goods could pinch. For instance, the price of an Apple phone could rise by up to Rs 5,000. A Rs 9.3 lakh Hyundai Creta is likely to see a Rs 70,000 jump in price while an Audi R8 could get costlier by Rs 10 lakh.

Updated: February 2, 2018 — 12:07 am

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