Choosing Between Traditions and Simplicity — Investment Declarations Part 2, The Finale!
The Investment Declaration Dilemma: Picking Sides in the Tax Colosseum
Caught like a deer in the headlights with the latest announcement? Hear the drumrolls as the government proclaims,
"Bhaiyon aur Behnon, from FY 24–25, we're auto-tuning everyone to the new tax regime's frequency."
If the suspense of the old tax regime and the alluring simplicity of the new one have you doing a financial tug-of-war, fret not! Your favorite financial series just got renewed with a fresh episode. Missed the pilot? Dive into the backstory here before we unravel the plot twists of investment declarations. This saga isn’t just about taxes; it's an odyssey where your cash learns some slick moves to dodge those tax bullets.
The New Tax Regime: No More Deduction Drama
Since we covered in detail what the old tax regime entails, here's two liner on the deductions offered under new tax regime. The new tax regime is like that friend who orders plain dosa because it's just easier. This regime offers up just a couple of money-saving snacks: a cool ₹50,000 standard deduction for the prime and proper salary earners, and the sleek Section 80CCD(2) move for when your boss chips into your retirement NPS fund. That's it. No lengthy menu, no complex recipes—just a one-two punch to keep things breezy.
A Tale of Two Taxpayers: Aman & Raman
Let's dive into a relatable anecdote because who doesn't love stories, especially when they're about money! Meet Aman and Raman, both proud possessors of that coveted corporate job, earning an identical salary.
Aman is a man of tradition. He chooses the old regime, armed with his investment proofs, insurance receipts, and a little temple in the corner of his house for his tax-saver FDs. Aman loves the thrill of chasing tax-saving investments like ELSS, PPF, and more under Section 80C.
Now, Raman is our new-age maverick. He goes for the new tax regime. He's not into the hassle of chasing deductions or storing a sea of paperwork. Raman chooses simplicity and perhaps spends his time binge-watching shows instead of scanning through investment brochures.
Assuming both Aman and Raman earn the same amount let's take 3 different scenarios and see which regime is beneficial under different categories. So here are some calculations for the nerd in you.
Scenario: Income of ₹7.5 Lac
Aman:
Start with Gross Income
- Aman's salary = ₹7,50,000
Subtract the Deductions
- Section 80C investments (say, Aman's a fan of ELSS, PPF, etc.): ₹1,50,000
- Section 80D for health insurance (because Aman's fit but cautious): ₹25,000
- Home loan interest under Section 24 (Aman bought a little nest): ₹2,00,000
- Donations under 80G (Aman's got a big heart): ₹10,000
- Deductions under section 10 (a 'standard' feature now): ₹50,000
Do the Math
Total Deductions = ₹1,50,000 + ₹25,000 + ₹2,00,000 + ₹10,000 + ₹50,000 = ₹4,35,000
Calculate Taxable Income
Aman's Taxable Income = Gross salary - Total Deductions
Taxable Income = ₹7,50,000 - ₹4,35,000 = ₹3,15,000
But wait, there's a twist! Because Aman's taxable income falls within the ₹5 lakh bracket, and there are tax rebates if your net income is up to ₹5,00,000, our friend Aman gets to enjoy his chai tax-free. Yep, no tax for Aman!
Raman:
Start with Gross Income
- Raman's salary = ₹7,50,000
Subtract the Deductions
- Only Standard Deduction for Raman (remember, he likes life straightforward): ₹50,000
Calculate Taxable Income
Raman's Taxable Income = Gross salary - Standard Deduction
Taxable Income = ₹7,50,000 - ₹50,000 = ₹7,00,000
For Raman, with his taxable income at ₹7,00,000, he's eligible for a full tax rebate under section 87A since his net income doesn't exceed ₹7,00,000. Hence, Raman, like Aman, enjoys a tax-free income year. Cheers to that!
Scenario 2: Income of 15 Lac
Now the same method is applied for this income level, just with higher numbers and more tax- jujitsu to maneuver. Just remember, the essence of the formula remains the same Taxable Income = Gross Income - Deductions.
Aman:
- Income: ₹15,00,000
- Deductions: The same heroic deductions as before i.e ₹4,35,000
- Taxable Income: ₹15,00,000 - ₹4,35,000 = ₹10,65,000
- Tax Liability (with 4% cess) :₹1,37,280
Raman:
- Income: ₹15,00,000
- Standard Deduction: ₹50,000 (Because nobody says no to freebies)
- Taxable Income: ₹15,00,000 - ₹50,000 = ₹14,50,000
- Tax Liability: ₹1,45,600
Scenario 3: Income of 25 Lac
Let's keep crunching those numbers as we want to get as realistic as possible.
Aman:
- Income: ₹25,00,000
- Deductions: The same heroic deductions as before i.e ₹4,35,000
- Taxable Income: ₹25,00,000 - ₹4,35,000 = ₹20,65,000
- Tax Liability (with 4% cess) :₹4,49,280
Raman:
- Income: ₹25,00,000
- Standard Deduction: ₹50,000 (Because nobody says no to freebies)
- Taxable Income: ₹25,00,000 - ₹50,000 = ₹24,50,000
- Tax Liability (with 4% cess) :₹4,52,400
To Save or Not to Save: Navigating the Tax Regime with a Smile
So there you have it, folks! Aman's the tax wizard, weaving his magic with deductions, while Raman keeps it neat and tidy with just the standard play. (Psst... The numbers above are for giggles and ballpark figures)
Whether you're a meticulous Aman with a folder for every occasion or a carefree Raman who treats tax season like just another day at the beach, the choice between regimes is akin to choosing between a spicy samosa or a sweet jalebi. The old regime, with its delightful array of deductions, is perfect for the financially savvy souls who revel in the annual scavenger hunt for tax-saving treasures. The new regime, on the other hand, is for those who prefer a minimalist approach, akin to sipping on a single malt with no distractions.
" Remember, the best choice is as personal as your playlist – there's no one-size-fits-all. So, whether you're a saver or a spender, a planner or a last-minute dasher, tune into Simplify Money for more money mantras that'll make your rupees do the bhangra."
That's it! Keep your calculators close and Simplify Money closer. Stay savvy, stay smiling, and let's make finance fun together! 🎉💸
Table of Content
- The Investment Declaration Dilemma: Picking Sides in the Tax Colosseum
- The New Tax Regime: No More Deduction Drama
- A Tale of Two Taxpayers: Aman & Raman
- To Save or Not to Save: Navigating the Tax Regime with a Smile