IT Professional (27) Asks: Which Tax Regime is Best for 2024-25?

Ans: Choosing the right tax regime can be tricky, but understanding your investments and goals can help. Here's a detailed plan to help you decide.

Current Financial Situation
Age: 27 years
Profession: IT sector
Annual Income: Rs. 26 lakhs
Investments: PPF, SSY, NPS
Considering: Corporate NPS
Understanding Tax Regimes
1. Old Tax Regime

Deductions: Offers various deductions like 80C, 80D, and more.
Exemptions: Includes HRA, LTA, and others.
2. New Tax Regime

Lower Rates: Provides lower tax rates but no deductions or exemptions.
Simplified: Easier for those with fewer investments.
Analyzing Your Investments
1. Public Provident Fund (PPF)

Benefits: Tax deduction under Section 80C. Tax-free interest.
Long-Term: Great for long-term wealth accumulation.
2. Sukanya Samriddhi Yojana (SSY)

Benefits: Tax deduction under Section 80C. Tax-free returns.
Goal-Oriented: Ideal for securing your daughter’s future.
3. National Pension System (NPS)

Benefits: Additional deduction under Section 80CCD(1B). Partial tax-free withdrawals.
Retirement Planning: Helps in building a retirement corpus.
Benefits of Corporate NPS
Employer Contribution: Additional tax benefits if your employer contributes.
Flexibility: Offers flexibility in choosing investment options.
Tax Regime Decision
1. Calculate Deductions

Old Regime: Calculate total deductions including 80C, 80D, and others.
Compare: Check if total deductions significantly reduce your taxable income.
2. Evaluate New Regime

Flat Rates: Compare the tax payable under the new regime with lower rates.
Simplicity: Easier filing if you don't need deductions.
Recommended Approach
1. Use Old Tax Regime

For Maximizing Deductions: If total deductions and exemptions significantly lower your taxable income.
2. Switch to New Regime

If Simplified: If deductions are minimal and you prefer simpler filing.
Steps to Optimize Tax Savings
1. Maximize 80C Limit

Invest Fully: Ensure PPF, SSY, and NPS contributions utilize the Rs. 1.5 lakh limit.
2. Additional NPS Benefit

Section 80CCD(1B): Invest an additional Rs. 50,000 in NPS for extra tax benefits.
3. Health Insurance

Section 80D: Get health insurance for additional tax deductions.
Future Investments
1. Diversify

Mutual Funds: Consider SIPs in equity mutual funds for long-term growth.
Avoid Real Estate: Focus on financial assets for better liquidity and returns.
2. Emergency Fund

Build Savings: Set aside at least 6 months’ expenses in a liquid fund.
3. Regular Review

Annual Check: Review your investments and tax-saving strategies every year.
Final Insights
Choosing the right tax regime depends on your investment profile. If you have significant deductions, the old regime is beneficial. If simplicity and lower rates appeal to you, consider the new regime. Keep investing in PPF, SSY, and NPS for long-term growth and tax benefits.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in