According to the senior vice president of ICICI Prudential Life Insurance, individuals are free to choose between the old regime with deductions and the new regime with lower tax rates
Preeti Nahar, Senior Vice President, ICICI Prudential Life Insurance Company Ltd. touches up on several tax saving options, while highlighting the nuances of the old and new tax regimes. The following are the edited excerpts from her conversation with ET Insights.
1. With the current financial year coming to a close, individuals still adhering to the old tax regime are searching for ways to save on taxes. Can you recommend any savings options apart from the traditional methods of home loan and principal deductions?
Under the old tax regime in India, individuals can claim deductions for various expenses and investments to lower their taxable income. Some of the deductions available are as follows:
Life and Health Insurance Premiums: Avail deduction for the premiums you pay for your life and health insurance policies. You can claim up to Rs. 1.5 lakh per annum for life insurance. Additionally, deductions of up to Rs. 25,000 can be availed for getting health insurance for self, spouse, and dependent children. However, where the age of the insured is 60 years or more, then the deduction available is up to Rs. 50,000. An additional deduction of Rs 25,000 for parents’ health (father or mother or for both) can be claimed (Rs. 50,000 if parents are of the age of 60 years or more).
Education Loan Interest: Did you take an education loan for yourself, your spouse, or children? You can claim a deduction for the interest paid on the loan for a maximum of 8 years or till the interest is paid; whichever is earlier.
National Pension Scheme (NPS): Want to save for your retirement and get a tax benefit at the same time? Contribute to your NPS account and claim a deduction of up to 10% of your salary, subject to a maximum of Rs. 1.5 lakh per annum. An additional deduction of Rs. 50,000 per annum is available for contributions to the NPS Tier-1 account. The maximum deduction that can be claimed under section 80C, section 80CCC, and 80CCD(1) is Rs. 1,50,000 per annum.
Donations: Give back to society and save on taxes too! You can claim deductions for donations made to certain relief funds, charitable institutions etc.
2. Considering that deductions are decreasing each year, is it advisable to persist with the old tax regime?
Up to a certain income level, the new tax regime offers lower tax rates but with fewer deductions, whereas the old tax regime offers comparatively higher tax rates but with more deductions. Plus, if you’re a senior citizen or super senior citizen, then in the old tax regime you enjoyed higher basic exemption limits. So, which one is better? It depends on your financial situation and goals. If you’re someone who values simplicity and doesn’t have a lot of deductions to claim, the new tax regime might be a good option.
However, if you have a lot of deductions to claim, such as interest on home loans, education loans, and donations, the old tax regime might still be the way to go. The higher tax rates might seem intimidating, but the deductions can help you save a significant amount of money. Further, for people with disabilities, the old tax regime offers even more deductions.
So, to answer the question – it depends on your financial situation and goals. If you’re someone who values simplicity and doesn’t have many deductions, the new tax regime might be a good option. But if you have a lot of deductions to claim, the old tax regime might still be the better choice. As always, consult with a tax professional to determine the best course of action for your unique situation.
3. The proposed new tax regime appears to be more appealing. What is your opinion on this, especially in the context of a 15 lakh salary package?
While the new tax regime may seem more appealing with its lower tax rates, it’s important to weigh your options carefully. As a salaried person with a Rs 15 lakh package, you might be tempted to opt for the new tax regime for its simplicity and ease of use. However, if you have availed housing or education loans or have insurance policies, the old tax regime might still be more beneficial. With a range of deductions available, including those for medical expenses, donations, and even interest on loans, the old tax regime can help you save a significant amount of money. So, before you decide, make sure you consider all your options and consult a tax professional if needed.
4. Could you offer any guidance on how to save on taxes?
Under the old tax regime in India, there are several deductions that you can avail of to lower your taxable income. This includes deductions for life and health insurance premiums, interest on housing and education loans, contributions made to the National Pension Scheme (NPS), and donations to charitable institutions. Individuals should make sure that they claim these deductions to lower their taxable income.
Now, under the new tax regime, there are very few deductions available, but it offers lower tax rates up to a certain income level. So, you need to decide which is more beneficial – the old regime with deductions or the new regime with lower tax rates.