Sir I am in a temperory govt job and recieving a salary around 75k per month..since 5 months i didn't recieve salary due to some technical problem and now they are planning to pay me whole amount in financial year 2024..due to this my slab will change from 20%to 30% and i need to pay more tax without any salary hike..can you suggest some solution for that..

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: The below are the types of deductions you can claim under the old tax regime -

1. Investment in PPF/NSC/ Insurance: INR 150000
2. Mediclaim - depending upon self and / or dependents : INR 25000 / INR 50000 or INR 75000 (incase either parent is a senior citizen)
3. Interest on savings bank account interest to the extent of INR 10000
4. You can claim housing rent allowance from your salary income incase you live on rent.
5. Other deductions depend upon whether you have housing loan or education loan etc.
6. Investment in National Pension scheme : INR 50000

Please consult your CA before moving ahead.

Ans: Interest paid on Home Loan is also exempt under the new tax regime. You may plan for that.
I feel in your case old regime may not be beneficial even after all tax savings under 80-C, 80-D & 80CCD(1b).
Most welcome for any further clarifications. Thanks.

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