Budget 2018: What income tax changes to expect from FM Jaitley today

The finance minister Arun Jaitley is set to present Budget 2018 in Parliament at 11 AM today. So, here is a look possible announcements the middleclass taxpayer can expect from Budget 2018.

Standard deduction might make a comeback
It was reported last week that officials at the finance ministry are working on reintroducing standard deduction for salaried employees. If the standard deduction makes a comeback, it will lead to more money in the hands of the salaried class and even bring in parity with the non-salaried individuals, i.e. self -employed, who pay taxes after taking deductions on the expenses incurred for earning that income.


The simplicity of calculation of standard deduction was its main advantage. It was given as a straight deduction from the salary before arriving at the taxable salary. It did not require any disclosures, investment proofs or even bills.

Earlier, deduction allowed was equivalent to Rs 30,000 or 40 percent of income, whichever was lower, for salaried employees earning an annual income between Rs 75,000 and Rs 5 lakh. There was also a limit set for standard deduction at Rs 20,000 for those earning more than Rs 5 lakh.

If the government allows a flat deduction of Rs 50,000 to the salaried class, those in the highest bracket of 30 per cent will end up saving Rs 15,300 a year in taxes.

Increase in income tax exemption limit
Many expect the finance minister to increase the income tax exemption limit. Speaking to ET Online, Sonu Iyer, tax partner and people advisory services leader, EY said that she expects the Budget 2018 to increase the basic tax exemption limit from the current level of Rs 2.5 lakh to Rs 3 lakh and also the Section 80C investment limit for tax saving from the current Rs 1.5 lakh to Rs 2 lakh.

She added that the Budget could increase the surcharge payable by high net worth individuals. Taxing the super-rich would be progressive in terms of taxation and also help the government make up revenue loss elsewhere.

Long-term capital gains (LTCG) on equity investment
The government is looking to reintroduce long-term capital gains tax on listed stocks with certain riders as part of its attempts to raise more revenue in the Budget. Currently, trades on stock exchanges face STT irrespective of duration of the holding. If the finance minister opts to bring back LTCG tax, the government will be able to levy tax on shares that are held for more than 12 months too.

Market players are obviously not happy with the proposal and they believe that the government will tax them when valuations are high and will impact stock markets and fundraising as well as disinvestment plans.