For the old tax regime, you should note that various tax-saving deductions from instruments like ULIP investments are applicable. Your income will be anyway exempted till Rs. 5 lakh. For lowering taxes on the remainder, you can leverage the benefits of the following:
- ULIPs – What is ULIP? It combines life coverage and investments with tax deductions up to Rs. 1,50,000 under Section 80C. This will help you build a future corpus while ensuring your family’s financial security.
- Term Insurance and Other Life Insurance- Various types of life insurance policies offer tax deductions up to Rs. 1,50,000 under Section 80C. This applies to premiums paid for policies for the self, spouse, and children, subject to the overall limit.
- Health Insurance- You can get deductions up to Rs. 25,000 under Section 80D if you are less than the age of 60 for health insurance premium payments. This increases to Rs. 50,000 for those who are senior citizens.
- Other tax-saving investments- Section 80C has a cumulative limit of Rs. 1,50,000, and you can avail of deductions for investments made in various options like NSC, PPF, ELSS, tax-saver FDs, and more.
- Home Loan Principal and Interest Deductions- Subject to specific conditions, you can get deductions up to Rs. 1,50,000 on home loan principal repayments under Section 80C and up to Rs. 2 lakh under Section 24.
- You can get LTA and HRA exemptions along with exemptions on your children’s education. Mobile/internet allowance and food allowance are exempted, subject to specific terms and conditions.
- A standard deduction of Rs. 50,000 is also available
- You can also get deductions under Section 80E for loans taken for the higher education of the self, children, or spouse
- Donations to charitable organisations are also tax deductible under Section 80G
There are no applicable deductions or other tax benefits for the new tax regime. However, the biggest announcement in the 2023 Union Budget pertains to the tax-exemption limit being increased to Rs. 7 lakh from Rs. 5 lakh. In this case, you will anyway have a significant chunk of your income exempted from taxes. From the remainder, you can also deduct the standard deduction for higher savings.
You should compare both regimes in terms of tax benefits. Investments and insurance are both necessities for diverse purposes in life. Hence, you should look to get tax deductions/benefits from them for some savings on your investments. From this perspective, consult your financial advisor and make sure that you maximize your tax savings in the old tax regime. Then, compare your final outgo with the new tax regime, and you will know where to invest.
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