Calculating tax on various heads of income

The Budget has made some significant changes

I retired from the Railway service in October 2017. The organisation was deducting TDS and so I have not worried about paying tax so far.

Now, from FY 2018-2019, I have to remit the tax myself. I like to know my tax liability for FY 2018-19. Expected income and other details are given below. ₹25,000 is expected as monthly pension.

From savings and investing, I expect ₹2 lakhs LTCG , ₹1 lakh STCG and another ₹1 lakh interest income in the year 2018-2019. I am now repaying ₹16,000 to SBI towards housing loan. Of this, ₹9,000 will go as interest and about ₹7,000 as principal approximately. Around ₹25,000 is being paid yearly towards Mediclaim policy.

Vijayan Valiyapurayil

As per the provisions of Income-tax Act, 1961, an individual is liable to pay tax on incomes earned after allowing for eligible exemptions/ deductions. There are various factors that determine the taxability under different heads of income — for example, tax on capital gains depends upon period of holding, type of asset sold, whether or not any securities transaction tax (STT) was paid on sale of capital assets, etc.

Similarly in case of interest incomes, source of interest incomes shall determine whether interest incomes are eligible for any deductions. Hence, I have not calculated the tax liability for your case and have provided the provisions applicable for FY 2018-19, after including the amendment in Budget 2018 , in brief which will help you compute the final tax liability.

Monthly pension received as an annuity by any ex-government employee is taxable as ‘salary”. Hence ₹3 lakh per annum (₹25,000 per month) shall be fully taxable in your hands.

Interest income of ₹100,000 is also taxable. However, I understand that during FY 2018-19, you shall be qualifying as a senior citizen (that is, 60 years or above). Accordingly, based on the recent change in the Budget 2018, you will be eligible for deduction under Section 80TTB of up to ₹50,000 in respect of interest earned from deposits (namely, fixed deposit, recurring deposit, savings account, etc) from a bank, cooperative society or post office.

Taxability of long-term capital gains depends on the nature of asset held. In case the gain is earned from sale of listed shares or equity oriented mutual funds (STT paid at the time of purchase and subsequently on sale), the gains shall be exempt from tax (up to ₹1 lakh). Such gain above ₹1 lakh shall be taxable at 10 per cent (without providing for cost indexation). LTCG from sale of unlisted shares, immovable property or debt funds is taxable at 20 per cent (after allowing for cost indexation).

Similar to LTCG, taxability of short-term capital gains (STCG) depends on the nature of asset held too. In case the gain is earned from sale of listed equity shares or equity oriented mutual fund (STT paid on sale), the gain will be taxable at 15 per cent. STCG from sale of unlisted shares, immovable property or debt funds will be taxable at the applicable slab rates.

In case a residential house property is purchased or constructed with borrowed capital, and such purchase or construction was completed in three years from the end of the financial year in which the capital was borrowed, the individual is eligible for deduction against repayment of interest. In case this condition is satisfied, you shall be eligible to claim deduction of ₹9,000 paid as interest on housing loan from SBI.

Please note that the maximum amount of deduction available in case of self-occupied property is ₹200,000. In case of let-out property, the entire interest payable on borrowed capital is allowed as deduction. However, total loss from house property cannot exceed ₹2 lakh and the balance amount of loss (if any) can be carried forward (up to 8 years) for set off against house property incomes. Further, principal repayment of housing loan is allowed as deduction under Section 80C of the Act, subject to the maximum deduction limit of section 80C, that is, ₹150,000.

Since you are a senior citizen and we assume that the Mediclaim policy would have been taken for self, spouse, dependent children and parents, the amount of premium paid, ₹25,000, will be allowed as deduction under Section 80D of the Act.

On the basis of above mentioned provisions you may compute your tax liability at the slab rates applicable for a senior citizen after allowing for standard deduction of up to ₹40,000 from your salary income (as per recent amendment in the Budget).

As your income is less than ₹50 lakh, no surcharge on tax is applicable for your case. However, a health and education cess at 4 per cent (increased from 3 per cent of education cess in the Budget 2018) of the total of income-tax shall be levied.

The writer is a practising chartered accountant

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