The budget is significant not just for the country but you as well. That’s because it directly impacts you. The changes it makes in its taxation structure can influence your disposable income, investment portfolio and so. This is why tracking the budget can be a useful exercise. You get an idea about what to do with your income. You can plan where to invest, how to save tax and so on.
But, don’t worry if you haven’t. This article will briefly tell you how this year’s budget can affect your investment:
Equity
The Indian government imposed a Long-Term Capital Gains Tax [LTCG] of 10% on equity assets in this year’s budget. This means that if you sell the equity investment after 12 months, you will be taxed 10%. However, you are exempted from paying tax if your proceeds are not over Rs 1 Lakh. You also need to remember that the LTCG tax is applicable from April 1, 2018.
To understand the LTCG tax calculation, you need to understand the meaning of Fair Market Value [FMV] and acquisition cost.
The FMV is the highest price of a listed equity share on an exchange on January 31, 2018. If there was no share trading on January 31, the highest price quoted on the most recent trading day before January 31 will be used. The FMV for an unlisted asset like the share of an unlisted company will be its Net Asset Value [NAV] on January 31, 2018.
The acquisition cost will be the higher of the FMV or the purchase price. If the sale price is less than FMV, the acquisition cost will be the higher of the purchase price or sale price. The difference between the sale price and the acquisition cost will be the capital gain or loss.
Mutual funds
The budget has not changed the tax deduction limit of Rs 1.5 Lakh under Section 80C of the Income Tax Act. This means Equity Linked Saving Scheme [ELSS] is one of those funds that can help you reduce your taxable income.
However, the introduction of LTCG tax has complicated matters. But, you can still save tax if you are smart. As mentioned earlier, gains up to Rs 1 Lakh are exempt from tax. Once the three-year lock-in period is over, sell units partly in a way that your gains do not exceed Rs 1 Lakh in a financial year. This method can help you earn an income every year without paying taxes! You can also choose to reinvest the proceeds in a new ELSS scheme.
Retirement planning
A person turning 60 years can withdraw 60% of the corpus held in a National Pension Scheme [NPS] account at maturity. About 40% of the corpus is exempt from tax. The tax exemption benefit is meant for salaried employees only. The benefit is extended to all subscribers of the NPS scheme from April 1, 2018.
Fixed deposit
Until now, the tax exemption limit for interest earned from post office and bank fixed deposit was Rs 10,000. But this limit will be raised to Rs 50,000 from the next financial year. The tax benefit is applicable to recurring deposit schemes as well.
To sum up
Now that you are aware of the tax impact on each asset class, you can start with investment planning for next financial year.