Sir, my total income for FY 2023-24 would be around 6,60,000/- including my pension and bank interest May I know which tax regime will be helpful to me and how much tax i need to pay..? and if I save 1.00 to 1.50 L, will I be free from IT..?

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

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