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Do not fall for these rumours about Budget 2018

Any change in law especially related to taxation, always gives rise to rumours. May be some don’t understand the legal language, or some have interpreted the law wrongly. Either ways, we have seen many such rumours especially during the Demonetisation phase. Now here are some rumours you may have heard about the Budget 2018

1. The healthcare schemed for poor 10 crore families is woefully underfunded and hence is just a “jumla”. 

This argument has been made by many such as Activist Prashant Bhushan, who incidentally also uses his twitter account to spread fake news.

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Yes, only Rs 2000 crores have been allocated in the budget to this  healthcare scheme for the poor, which has ben dubbed as Modicare. But, the amount has to be understood in the full context, which was later provided by finance ministry officials. Union Finance Secretary Hasmukh Adhia later said that it would perhaps take another six months for the scheme to be worked out and it may not be implemented for the entire financial year. Thus, the Rs 2000 crore is not intended to cover the full year’s premium and maybe covering parts of the year.

Further, although the target is to cover 10 crore poor families, it is common sense that identifying and reaching them will take time. Thus in the first 6 months, the actual premium due will not be that of the entire target, but a smaller subset. Further, Adhia as well as  Union Expenditure Secretary Ajay Narain Jha said that more funds would be provided for the healthcare scheme, if required once details are worked out. Also, it may be noted that the premiums for large group insurance schemes are usually substantially lower. The premium for this scheme cannot be compared to premiums for other retail mediclaim schemes since there will be no middlemen, commission agents and the underwriting calculations will differ.

Hence only based on the budget allocation figure, and comparing the premiums with retail premiums, one cannot call the scheme a “jumla”. Critics would be correct in passing judgement only if the Government fails to implement this promise.

2. Hidden “bomb” in budget: If Tax Returns are not filed in time, tax benefits such as 80C etc will not be allowed.

A Whatsapp message to the above effect is doing the rounds. Is it true? Does the budget state this? The memorandum to the budget, which explains the clauses, states as below:

The above clearly states that the deductions under Chapter VIA Section C – Deductions in respect of certain incomes, will not be allowed if a return is filed after due date. Sec 80C etc fall under Chapter VIA Section A. In fact most of the deudtions applicable to common man are housed in this section. Section C covers certain specific deductions for specific industries and businesses, not impacting common man. Many deductions in this Chapter were already allowed only if the returns were filed on time. The Budget has now extended this clause to all deductions under Section C. Hence the common man’s deductions are untouched.

3. Applicability of Long Term Capital Gains on sale of shares/mutual funds, starts from February 2018

This one can be complicated. Many people are under the impression that if one sells shares and mutual funds in February or March 2018, then there would be tax on the resultant long term capital gains. We had done a detailed explainer here, but the intention of the law can be explained with the help of an example:

Assume a share purchased on 30.01.2017 for Rs 100. You hold this share for say 20 months (making it a long term capital asset) and sell it on 30.09.2018 for Rs 150. The market value of the share on 31.01.2018 was Rs 120. The tax will be levied as below:

On Rs 120 – Rs 100 = Profit of Rs 20 – NO TAX i.e. no tax on capital gains till date prior to budget.

On Rs 150 – Rs 120 = Profit of Rs 30 – TAXED AT 10% i.e. tax only on the gains accrued post budget date. Again, this tax will apply only if the total capital gains exceed Rs 1 lakh

In the above example, if the person had sold the share on 28.02.2018 for say Rs 130, it would still be a Long Term Capital Asset. But would the gains of Rs 10 (Rs 130 – Rs 120) be taxed at 10% since the sale happened after the budget was announced? No.

We have to bear in mind, that the budget speech only proposes various tax rules, and the same need to be passed by both houses and then assented to by the President, for them to be enforced. This is expected to happen by 31.03.2018, just in time for the new Financial Year. Thus, they are applicable only for transactions incurred in Financial Year beginning April 2018.

Another question could be: What if the rules were brought in with retrospective effect? Yes that can be done, but in this case, the law clearly states that the change in taxation will be in force only in the next Financial Year. In fact, by using 31.01.2018 as the cutoff, the law actually avoids any unintended retrospective impact, i.e. gains till the date of budget are not taxed.

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