The year 2018 can also be named as “The year of Changes in Financial Sector”. While some of the changes are related to Investment Products, other changes are about taxation.  Finance Minister Arun Jaitley on 1st Feb 2018 presented his last full budget and introduced some tax changes for the financial year 2018-19. SEBI has also introduced some changes related to Mutual Funds. Let us look at those changes that came into effect from 1st April 2018 and are directly related to our personal finance.

1. Introduction of Health and Education Cess – Cess is an additional tax calculated on the amount of income tax payable. Till FY 2017-18 government was charging surcharge and education cess of 3% over income tax. This has been now increased to 4% for FY 2018-19 and is now named as Health and Education cess. The increased cess is proposed to be used for National Health Insurance scheme where government is planning to provide free health insurance of Rs. 5 Lakh for 10 Crore families. 

2. Deduction for Senior Citizens – This change is positive for senior citizen community. Till now only Rs. 10,000 deduction was allowed for all individuals with respect to the interest income earned on the deposits held with banks or post offices. In this budget the deduction amount is now increased to Rs. 50,000 but this deduction is only allowed to senior citizens who are above 60 years of age.   
 
3. Introduction of Standard Deduction:-  This came as a surprise for salaried employees. Till now they were allowed for deduction on Travelling Allowance of Rs. 19,200 and medical reimbursement of Rs. 15,000 yearly, however, this was allowed only if the bills were presented. From this year government has introduced a standard deduction of Rs. 40,000 for employees thus withdrawing travelling allowance and medical reimbursement. This will give them a net benefit of Rs. 5800 and also peace of mind as now they will not be asked to present bills for travelling and medical expenses.   
 
4. Tax free withdrawal from NPS – Till now 40% withdrawal from NPS account at the time of maturity or during willful closure of account was tax free only for employees. From this year this benefit is now extended to every individual subscriber of NPS.
 
5. Changes in Capital Gain bonds – Capital gain bonds are used by those who wants to save tax on the long term gain arise from the sale of capital asset under Sec. 54EC. Till last year list of Capital assets includes land, building, plant and machinery, unlisted shares, bonds, etc. From this year capital gain arising only on land & building is exempt if capital gain bonds are purchased within 6 months of sale of asset. Also, the holding period of these bonds is now extended to 5 years from the current holding period of 3 years.
 
6. Reintroduction of LTCG Tax on Equity and Equity Mutual Funds – The budget 2018 reintroduced LTCG (Long Term Capital Gain) Tax on Equity Shares and Equity Mutual Funds. This tax was abolished in 2004 and is now back with a surprise for investors. From 1st April 2018 long term capital gain exceeding Rs. 1 Lakh in a financial year will now attract 10% tax. This is applicable only on Equity Mutual Funds, Equity shares and not on ULIP.
 
Investments which were made on or before 31st Jan 2018 (prior to budget announcement) are eligible for indexation and for these investments cost price will be considered as the actual price or the price on 31st Jan 2018 whichever is higher. This move was made only to compensate the equity investor.
 
7. Dividend distribution tax on Equity Mutual Funds – In case of equity mutual funds dividend will now be subject to 10% DDT (dividend distribution tax). However, this will be charged to the mutual fund company and not to the investor. This means investor will get tax free dividend. This is applicable only in the case of equity mutual funds and for equity shares it is tax free till Rs. 10 Lakh per financial year.
 
Conclusion:- Above discussed are some of the changes that will impact our overall finances in new financial year. Out of all, there are hardly few changes that will cost more, else rest are good for investors. We as Investment Adviser think that now is the time for investors to revisit their financial plan and adjust their goal strategy with respect to the changes in taxation.
As an investor what do you think about these changes? Are these good for you? Will you be changing your investment strategy now? Do share with us your views.