Stuck paying 4 lakhs tax despite investments and loan: Which regime to choose?

Ans: For a Pensioner not availing any tax benefits (Deduction of housing loan repayment, Life insurance premium, Mediclaim, Tax saver mutual fund etc), new tax regime will be beneficial.

Ans: Person having taxable income around 60 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

Ans: Person having taxable income around 60 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: Choosing the right tax regime is crucial. It impacts your tax liability and savings. Let's evaluate the Old and New Tax Regimes based on your annual income of Rs 27.5 lakhs. Both regimes offer distinct advantages. Understanding them helps you make an informed decision.

Old Tax Regime: A Closer Look
The Old Tax Regime is known for its deductions and exemptions. It allows you to reduce taxable income through various investments and expenses. These include:

Section 80C: Investments in PF, PPF, ELSS, etc., up to Rs 1.5 lakhs.

Section 80D: Premiums for health insurance, up to Rs 25,000 for self and family, and an additional Rs 50,000 for senior citizens.

House Rent Allowance (HRA): Exemption on rent paid, depending on your salary and rent amount.

Standard Deduction: Rs 50,000 deduction for salaried employees.

Home Loan Interest: Deduction of up to Rs 2 lakhs on home loan interest under Section 24(b).

The Old Tax Regime benefits those with significant investments in tax-saving instruments. It reduces tax liability effectively for those who can fully utilize these deductions.

New Tax Regime: A Simple Structure
The New Tax Regime offers lower tax rates. But it does away with most deductions and exemptions. It is suitable for those who prefer simplicity and have fewer investments in tax-saving instruments.

Here are the key features:

Lower Tax Rates: Tax rates are reduced across income slabs.

No Deductions or Exemptions: You cannot claim popular deductions like 80C, 80D, or HRA.

The New Tax Regime is beneficial if you do not have many deductions to claim. It simplifies tax filing and might lower your tax outgo if deductions under the Old Regime are minimal.

Evaluating Which Regime Is Better for You
To decide between the two regimes, consider the following factors:

Investment Habits: Do you invest in tax-saving instruments regularly?

Expenses: Are your medical insurance premiums or home loan EMIs significant?

Income Structure: Is a substantial part of your salary composed of allowances that are exempt under the Old Regime?

If your answer is yes to these, the Old Tax Regime might suit you better. However, if you prefer a straightforward approach with minimal deductions, the New Tax Regime could be advantageous.

Advantages of the Old Tax Regime
Maximizes Deductions: You can leverage a wide range of deductions and exemptions.

Encourages Savings: The regime incentivizes investments in tax-saving schemes.

Advantages of the New Tax Regime
Simplicity: The filing process is straightforward with no need to track multiple investments.

Lower Tax Rates: The regime offers reduced tax rates for various income slabs.

Disadvantages of the Old Tax Regime
Complexity: Tracking and managing multiple investments can be cumbersome.

Limited Liquidity: Lock-in periods in tax-saving instruments may restrict access to your funds.

Disadvantages of the New Tax Regime
No Deductions: You lose out on popular deductions that can reduce taxable income.

Missed Savings Opportunities: You might miss out on disciplined savings through tax-saving investments.

Personalized Advice: What Should You Do?
Given your salary of Rs 27.5 lakhs and no loans, here is a personalized assessment:

Assess Deductions: Calculate your current deductions under the Old Regime. Include investments, insurance premiums, and any home loan interest.

Compare Tax Liability: Estimate your tax liability under both regimes. Compare the savings in each scenario.

Consider Future Investments: Think about your future investment plans. Will you continue to invest in tax-saving schemes?

Final Insights
Choosing the right tax regime depends on your financial habits and preferences. The Old Tax Regime benefits those with significant investments and deductions. It offers more ways to reduce taxable income.

The New Tax Regime is for those who prefer simplicity and have fewer tax-saving investments. It provides lower tax rates but eliminates deductions.

Consider your current and future financial goals. If you are disciplined in saving and investing, the Old Tax Regime may suit you. If you want a simpler tax filing process with lower rates, the New Tax Regime could be the way to go.

Take the time to calculate your tax liability under both regimes. This ensures you make the best decision for your financial situation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in