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Budget 2018: Decoding the effect of FM Arun Jaitley's speech on salaried taxpayers

Aseem Thapliyal     February 2, 2018

In a move which will affect income tax payers, Finance Minister Arun Jaitley in his last full year Budget during the Narendra Modi government's current tenure proposed to replace existing 3 per cent education cess on personal income tax and corporation tax with a 4 per cent 'Health and Education Cess' to focus on the education and health needs of poor and rural families.

Currently, a 3 per cent cess, comprising 2 per cent cess for primary education and 1 per cent cess for secondary and higher education, is levied on personal income tax and corporation tax.

"In order to take care of the needs of education and health of BPL and rural families... I propose to increase the cess by one per cent. The existing three per cent education cess will be replaced by a four per cent 'Health and Education Cess' to be levied on the tax payable.


"This will enable us to collect an estimated additional amount of Rs 11,000 crore," Jaitley said while presenting the Budget 2018-19 in Parliament yesterday.

Experts said the impact will much higher for those falling in higher tax brackets.

While, taxpayers earning Rs 60 lakh per annum will pay Rs 13,354 more, those with taxable income of Rs 1.2 crore will pay an additional Rs 33,868 in income tax.

Taxpayers in the top slab of above Rs 10 lakh income with 30 percent tax rate will have to shell out Rs 2,625 more in income tax on acount of health and education cess.

For those falling income tax slab of Rs 5 to Rs 10 lakh with 20 percent tax rate stand to lose Rs 1125 more in income tax due to the cess.

Those who fall in the lowest tax slab of Rs 2.5 lakh to Rs 5 lakh will have to pay just Rs 25 more in their income tax.

The government also introduced standard deduction of Rs 40,000 for all salaried employees.

That sounded as a huge benefit for the taxpayers but there's a catch to it.

The government withdrew exemption of miscellaneous medical reimbursement of Rs 15,000 per annum and transport allowance of Rs 1,600 per month amounting to Rs 19,200 per annum in lieu of standard deduction. Currently, employees have to submit proofs of the above two to their employers in order to enjoy tax exemption.

The net benefit of the introduction of standard deduction and withdrawal of exemption of miscellaneous medical reimbursement and transport allowance stands out to be Rs 5,800 per annum.

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