How Can a Private Job Person Save Tax Under the New Tax Regime?

Ans: New tax regime is beneficial if all the tax benefits are not taken. For e.g. if income is 20 lacs and deductions u/s 80C is 150000 taken, tax liability will be Rs.300000 under new tax regime and under old it will be 367500.

However, if person take PPF benefit of 1.5 lac, 25k in mediclaim, housing loan interest deduction 2 lacs, 50k standard deduction from salary; tax liability under old regime will reduce to 285000 as per Budget proposal for FY 23-24.

plus applicable cess

Ans: 1. PPF / LIC/ ELSS - 1.5L
2. MEDICLAIM - 50K
3. MEDICLAIM SENIOR CITIZEN PARENTS - 25K
4. NATIONAL PENSION SCHEME - 50K

If you have HRA, housing loan or education loan then you may get additional benefits as well.

Please take help from your CA before moving ahead.

Ans: Please calculate your tax liability under both tax regimes & select the option, in which you have minimum tax liability.
It is not possible to generalise the selection of tax regime. It depends upon the individual details, Income & Saving patron to take advantage under both schemes.
Most welcome for any further clarifications. Thanks.

Ans: The new tax regime in India, introduced in the Budget 2020, offers lower tax rates but without the benefit of most deductions and exemptions available under the old tax regime. It’s designed to simplify the tax system and provide an alternative to taxpayers who prefer a straightforward approach to tax calculation.

Comparing Old vs. New Tax Regime
Under the old tax regime, you could reduce your taxable income by claiming deductions under various sections like Section 80C, 80D, HRA, LTA, etc. However, the new tax regime offers a lower tax rate but does not allow most of these deductions.

Here’s a quick comparison:

Old Tax Regime: Allows deductions under various sections like 80C, 80D, HRA, LTA, etc.

New Tax Regime: Offers lower tax rates but without most deductions and exemptions.

Tax Slabs Under the New Regime
The tax slabs under the new tax regime are as follows:

Income up to Rs. 2.5 lakh: No tax

Income from Rs. 2.5 lakh to Rs. 5 lakh: 5% tax

Income from Rs. 5 lakh to Rs. 7.5 lakh: 10% tax

Income from Rs. 7.5 lakh to Rs. 10 lakh: 15% tax

Income from Rs. 10 lakh to Rs. 12.5 lakh: 20% tax

Income from Rs. 12.5 lakh to Rs. 15 lakh: 25% tax

Income above Rs. 15 lakh: 30% tax

Deciding Between Old and New Regime
To decide whether to opt for the new tax regime, consider the following:

Total Income: Higher income levels might benefit more from the lower tax rates in the new regime, especially if you don't claim many deductions.

Deductions Claimed: If you claim significant deductions under the old regime, sticking with it might be more beneficial. If you don’t claim many deductions, the new regime could be better.

Investment Discipline: If you prefer not to invest in tax-saving instruments or if your lifestyle doesn't support certain deductions, the new regime offers simplicity.

Strategies to Save Money in the New Tax Regime
If you decide to opt for the new tax regime, here are a few strategies to maximize your savings:

Income Tax Rebate (Section 87A): If your taxable income is up to Rs. 5 lakh, you can still claim a rebate under Section 87A, which reduces your tax liability to zero.

Avoid Unnecessary Investments: Under the new regime, you are not required to invest in tax-saving instruments like ELSS, PPF, or NSC just for the sake of deductions. This can free up your cash flow for other investments or expenses.

Focus on Direct Investments: You can focus on investments that suit your financial goals rather than being driven by tax-saving needs. This could include mutual funds, stocks, or even building an emergency fund.

Simplified Tax Filing: The new regime simplifies tax filing as you don’t need to track and claim various deductions. This can save you time and reduce the complexity of your tax return.

Optimize Employer Benefits: If you have employer-provided benefits like NPS contributions, you might still want to consider the old regime. However, under the new regime, your take-home salary might be higher since you’re not contributing to tax-saving investments.

Finally
Choosing the new tax regime can simplify your tax planning and may reduce your tax outgo if you don’t rely heavily on deductions. It’s essential to weigh your income, deductions, and financial goals before making the switch. If you're still unsure, you can consult a Certified Financial Planner to evaluate your specific situation and determine the best approach for you.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in