I'm 27. Working in IT sector with annual package of 26L. Which tax regime if beneficial? Considering changes made in latest budget2024. I have following investments. PPF, SSY, NPS, thinking to opt for Corporate NPS option too.

Ans: Person earning income upto 7 lacs will be eligible for rebate under new tax regime and tax liability will be NIL as per Budget proposed for FY 23-24

Ans: Person having taxable income around 30 lacs and take deduction less than 4.25 lacs from housing loan/80C/80D, can opt for new tax regime as new slab rate is likely to be beneficial as per budget proposed for FY 2023-24

In future, you can calculate the tax from following link :

https://incometaxindia.gov.in/Pages/tools/115bac-tax-calculator-finance-bill-2023.aspx

Ans: Assuming your loan of 40L with duration of 15yrs , the EMI will be 40k approx with interest component being 3.36L for the first year. The Old regime will still be beneficial in this case.

Ans: Dear Shyam,

Thank you for reaching out with your query. Based on the information provided, your annual income is INR 32 lakh, you invest INR 50,000 in NPS, and have a health insurance premium of INR 30,000 per year. To determine the most suitable tax regime for you, we'll need to compare your tax liability under both the New and Old Tax Regimes, considering the deductions you're eligible for.

Under the Old Tax Regime, you can claim deductions for your NPS investment (Section 80CCD) and health insurance premium (Section 80D). Your taxable income would be INR 31,20,000 (32,00,000 - 50,000 - 30,000). The tax liability would be:

Nil on the first INR 2.5 lakh
5% on the next INR 2.5 lakh (INR 12,500)
20% on the next INR 2.5 lakh (INR 50,000)
20% on the next INR 2.5 lakh (INR 50,000)
30% on the remaining INR 21.2 lakh (INR 6,36,000)
Total tax liability under the Old Regime: INR 7,48,500

Under the New Tax Regime, you won't be able to claim deductions for your NPS investment and health insurance premium. Your taxable income would be INR 32,00,000. The tax liability would be:

Nil on the first INR 3 lakh
5% on the next INR 3 lakh (INR 15,000)
10% on the next INR 3 lakh (INR 30,000)
15% on the next INR 3 lakh (INR 45,000)
20% on the next INR 3 lakh (INR 60,000)
30% on the remaining INR 17 lakh (INR 5,10,000)
Total tax liability under the New Regime: INR 6,60,000

Comparing the tax liabilities under both regimes, you would save INR 88,500 by opting for the New Tax Regime. It's important to note that you will have to forgo the deductions mentioned, but in your case, the savings in tax outweigh the deductions. Therefore, I would recommend opting for the New Tax Regime for this financial year.

Please note that this is just an analysis based on the information you provided, and it's always a good idea to consult a tax professional for personalized advice.

I hope this helps!

Best regards,

Ans: Your gross salary of Rs 11,15,652 per annum puts you in a comfortable financial position. With only six years left until retirement, planning for both tax efficiency and post-retirement income is crucial. You have already invested Rs 15 lakhs in LIC policies and FDs, along with a PO Recurring Deposit of Rs 8,500 per month. These are conservative investment options, which provide stability but may not be enough to meet your post-retirement income needs.

Evaluating Tax Regimes for 2024-25
Choosing between the old and new tax regimes depends on your existing deductions and exemptions. The old regime allows for deductions under Section 80C, 80D, and others, which can lower your taxable income. The new regime offers lower tax rates but eliminates most deductions.

Points to Consider:

Old Tax Regime: If you claim significant deductions like HRA, 80C (up to Rs 1.5 lakhs), and 80D (health insurance premiums), the old regime may be beneficial.

New Tax Regime: If you don’t have substantial deductions or prefer a simplified process, the new regime with lower rates could be advantageous.

Estimating Your Tax Liability
Without specific details on your deductions, a rough estimate of your tax liability under both regimes can be considered. Here's a basic idea:

Old Tax Regime:

Income after Standard Deduction: Rs 10,65,652 (assuming Rs 50,000 standard deduction)
Deductions: If you claim Rs 1.5 lakhs under 80C, your taxable income would be Rs 9,15,652.
New Tax Regime:

Taxable Income: Rs 10,65,652 without additional deductions.
Given these estimates, it’s essential to calculate the exact tax based on your actual deductions.

Post-Retirement Income Planning
You aim to have a regular income of Rs 25,000 per month after retirement. To achieve this, you need to consider both the amount required and the investment avenues that will help you reach your goal.

Current Investments:

LIC and FDs: These are safe but offer lower returns. While they provide security, they may not be sufficient to generate Rs 25,000 per month.
PO Recurring Deposit: A good disciplined saving habit, but again, the returns are limited.
Creating a Retirement Corpus
To generate Rs 25,000 per month, you’ll need a substantial corpus. Assuming a conservative withdrawal rate of 4% per annum, the required corpus would be approximately Rs 75 lakhs.

Steps to Take:

Increase Equity Exposure: Since your current investments are conservative, consider adding equity mutual funds to your portfolio. Equity can provide higher returns, which are crucial for building a larger retirement corpus.

Systematic Investment Plans (SIPs): Start SIPs in diversified equity mutual funds. This will allow you to benefit from rupee cost averaging and compounding over the next six years.

Balanced Approach: Consider a mix of equity and debt funds. While equity will drive growth, debt funds will add stability to your portfolio.

Disadvantages of Direct and Index Funds
When considering mutual funds, it’s important to understand the drawbacks of direct and index funds.

Direct Funds:

No Professional Guidance: Investing directly without a Certified Financial Planner's guidance can be risky. Regular funds offer professional management and support.

Complex Decision Making: Selecting the right funds, rebalancing, and timely switches require expertise.

Index Funds:

Limited Growth Potential: Index funds simply replicate the market. They don’t offer the opportunity to outperform, which is vital for long-term growth.

No Active Management: In changing market conditions, index funds can’t adapt, leading to missed opportunities.

Investing for Regular Post-Retirement Income
To achieve your goal of Rs 25,000 per month, you need to strategically invest the additional amount required.

Options to Consider:

Systematic Withdrawal Plan (SWP): Invest in a balanced fund and opt for an SWP. This will allow you to withdraw a fixed amount regularly while the remaining investment continues to grow.

Dividend-Paying Funds: Consider funds that provide regular dividends. Though not guaranteed, they can be a source of regular income.

Debt Funds: Allocate a portion to debt funds for stability. These funds can provide steady returns, adding a cushion to your income stream.

Final Insights
With six years left before retirement, focusing on building a balanced and growth-oriented portfolio is key. Increase your equity exposure through SIPs, consider the advantages of regular mutual funds over direct and index funds, and strategically plan for a regular income stream post-retirement. By carefully choosing your tax regime and aligning your investments with your retirement goals, you can achieve financial security in your golden years.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in