Your Questions Answered: Which income tax regime should I opt for?

Q1. After the Indian government's recent modifications to the income tax law, which tax regime should I choose with a bundle of 9 LPA?

Choosing a tax regime, whether old or new, depends on if you are claiming any deductions or not. Assuming you are not claiming any deductions (including no EPF contribution) – in old tax regime tax payable would be Rs. 85,800 and in new tax regime tax payable would be Rs. 62,400.

However, old regime allows certain deductions through which you can save tax. If you have a gross income of Rs. 9 Lakhs, and if you claim a deduction of Rs. 1.7 lakhs and above then old tax regime would be beneficial to you. You can claim the deduction through below: -

1. Rs. 1.5 Lakhs under section 80C through EPF contributions, PPF, Equity linked saving scheme (ELSS), life insurance premiums etc.
2. Rs. 50,000 under section 80CCD(1B) through investment in NPS Tier I.
3. Health insurance premium paid of Rs. 25,000 and added Rs. 50,000 (Dependent parents over 60 years)/Rs. 25,000 (Dependent parents less than 60 years) under section 80D. Any health check-up during the year can also be claimed under this section to the extent of Rs. 5,000.
4. Rs. 10,000/year on interest income earned on Savings Account under section 80TTA.
5. Standard deduction of Rs. 50,000 for salaried and pensioners under section 16(IA).

A taxpayer having no business income can opt for the existing regime or the proposed regime every year upon analysing what is more beneficial. However, a taxpayer having a business income can withdraw from the choice so exercised only once and thereafter he/she cannot change the same. 

Q2. My annual pay is 8.5 LPA, which includes EPF contributions. What should I do to save so that I just must pay the very minimum in taxes? I've already put in ₹1 lakh.

Below options would help you to save tax in old regime.

1. You can claim Rs. 1.5 Lakhs under section 80C. It can be done through EPF contributions, PPF, Equity linked saving scheme (ELSS), life insurance premiums, principal part of home loan etc.
2. You can avail more tax benefit on contribution (up to Rs. 50,000) in NPS Tier I under section 80CCD(1B).
3. In case you have the option to opt for Employer’s contribution in NPS that would help you to save tax under section 80CCD (2) up to 10% of Basic plus DA.
4. You can avail the benefits under Sec 80D by paying health/critical insurance premium of Rs. 25,000 and added Rs. 50,000 (Dependent parents over 60 years)/Rs. 25,000 (Dependent parents less than 60 years). Any health check-up during the year can also be claimed under this section to the extent of Rs. 5,000.
5. You can claim deduction under Section 80 TTA on the interest income earned on Savings Account. The maximum deduction is limited to Rs. 10,000/ year.
6. In case you are claiming HRA that would also help you to save tax more.
7. Standard deduction of Rs. 50,000 for salaried and pensioners under section 16(ia).
8. Interest on home loan can be claimed under section 24b.
9. You can claim deduction under Section 80G on contributing some amount to donations depending on the type of institution.

Suggest you evaluate in consultation with your tax consultant the same again at the time of filing the returns based on the actual deductions being claimed by you then.

Q3. Is the Public Provident Fund (PPF) a practical investment for a salaried worker in the 30% tax bracket? Is it truly a good long-term (15-year) investment, given its current EEE and DTC, which suggests it should be made EET?

PPF is a good instrument to save for retirement. Given its current EEE benefit makes it more attractive. It generally offers higher interest rate than bank deposits. Even if the structure changes, old investments may not be affected. Generally, the changes apply to future contributions. However, the same needs to be re-evaluated if the structure changes.

Investments should be made as per your asset allocation and goal requirements.

While building a portfolio you can consider these - Understanding Risk and Return, Asset Allocation basis your risk appetite, Diversification, liquidity, and time frame for goals. 1.5L Investment p.a. into PPF can be tied in with the long-term goal and towards the debt allocation in your portfolio.

Q4. What is the greatest way to invest money for a child so that they will have a sizable sum when they leave home, and what is the minimum value that it should be worth it?

If you want to create a sizable corpus for your child’s education, to begin with, firstly you need to find his/her area of interest in future which is dependent on the stream he or she is inclined towards. Hence it is very important to check and research the cost of fees for various graduation & post-graduation courses in India & abroad. While doing so, include other costs such as project fees, coaching classes, hostel expenses to plan for the same.

After selecting the desired course for your child and understanding the appropriate cost, you need to estimate the future cost by adjusting the current cost with the education inflation rate and finding the future value

The next step will be to create a portfolio spread across both growth and stable assets and meet the desired corpus at the said period. To start initially, you can begin investing through an SIP or staggered way route. There is always a possibility to top up investments in the future. Products such as mutual funds or insurance linked investment plans can be looked at as it ensures a diversified growth and risk is limited.

Let’s understand this with the below example in the table:

Please note the cost assumed in the above table is only for illustration purpose, the actual cost may vary from institute to institute. It is crucial to review your portfolio periodically and if required take corrective actions.

Q5. What is the best investment option for an 8-month-old child for when he is old enough to go to school?

Considering the age of your child, he or she will be eligible to go to school post 3 years. There are various investment options available to fulfil the next 3-year goal such as debt mutual funds such as short duration funds, fixed deposits, or 3 years post office schemes.

The interest and suitability of these products varies from person to person, and it is important to do some research on the cost of admission before investing.

Also note that after your child starts his schooling, continue investing for his future goals such as Graduation, Post-Graduation, Marriage, etc.

Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

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