My salary is around 29LPA. I am an unmarried male living in new delhi with my mother. I am really bad at tax planning hence asking here. How should I plan my taxes i.e. should I opt for new regime or old regime? I have recently lost about 50K against my variable. I just have one car loan which I will be closing in few months but apart from that I don't do any investments but can invest as adviced.
Ans: Effective tax planning can save you a significant amount of money. Let's evaluate whether the new or old tax regime is better for you and suggest suitable investment options.
Understanding Tax Regimes
Old Tax Regime: Offers various deductions and exemptions like 80C, 80D, HRA, etc.
New Tax Regime: Has lower tax rates but no exemptions or deductions.
Evaluate Your Situation
Since you are not currently investing, your deductions are likely limited. Let's compare both regimes.
Old Tax Regime
80C Deduction: You can invest up to Rs 1.5 lakhs in various instruments like PPF, EPF, ELSS, etc.
80D Deduction: Health insurance premiums up to Rs 25,000 for yourself and your mother.
HRA and Home Loan Interest: You don't have these, so they won't apply.
New Tax Regime
Simplified Structure: Lower tax rates but no exemptions or deductions.
Comparative Analysis
Old Regime: Beneficial if you can claim significant deductions.
New Regime: Suitable if you prefer a simpler structure without investing for deductions.
Tax Slabs Comparison
Here’s a simplified comparison of tax slabs:
Old Regime:
Up to Rs 2.5 lakh: Nil
Rs 2.5 to 5 lakh: 5%
Rs 5 to 10 lakh: 20%
Above Rs 10 lakh: 30%
New Regime:
Up to Rs 2.5 lakh: Nil
Rs 2.5 to 5 lakh: 5%
Rs 5 to 7.5 lakh: 10%
Rs 7.5 to 10 lakh: 15%
Rs 10 to 12.5 lakh: 20%
Rs 12.5 to 15 lakh: 25%
Above Rs 15 lakh: 30%
Optimal Investment Strategy
Considering your current situation and future goals, here are some recommendations:
Section 80C Investments
PPF: Safe and offers good returns. Lock-in period of 15 years.
ELSS: Equity-linked saving schemes with a lock-in period of 3 years.
EPF: If you contribute to the Employee Provident Fund.
Health Insurance (Section 80D)
Health Insurance: Cover yourself and your mother. Get tax benefits up to Rs 25,000.
Additional Investments
NPS (Section 80CCD(1B)): National Pension System offers an additional Rs 50,000 deduction.
Term Insurance: Essential for financial security. Get tax benefits under 80C.
Comparing Deductions
If you can invest Rs 1.5 lakh in 80C, Rs 25,000 in 80D, and Rs 50,000 in NPS, your total deductions would be Rs 2.25 lakh. This would make the old regime more beneficial.
Benefits of Actively Managed Funds
Expert Management: Fund managers make informed decisions.
Potential for Higher Returns: Aim to outperform the market.
Disadvantages of Index Funds
Lack of Flexibility: Index funds simply track a market index.
Lower Return Potential: Aim to match market performance, not exceed it.
Final Insights
For effective tax planning, consider the old regime if you can utilize the deductions. Invest in PPF, ELSS, and health insurance. Also, consider NPS for additional benefits. Consult a Certified Financial Planner for tailored advice and better financial planning.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
