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IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

 

Which are the Important Deductions Available in the New Tax Regime?

 
What is the new tax regime?
 

The new personal income tax regime introduced in the 2020 Union Budget is applicable to individual taxpayers in 2023. The new tax regime has reduced the prevailing tax rates, but some of the crucial deductions and exemptions allowed under the previous regime are no longer available. 
 

The tax slabs for the new income tax regime have been adjusted in Budget 2023 as follows:

 

  • Individuals with an income of up to ₹3 Lakh will not be taxed. Those with an income above ₹3 Lakh and up to ₹5 Lakh will be taxed at a rate of 5 per cent.

  • Those earning an income of above ₹6 Lakh and up to ₹9 Lakh will be taxed at a rate of 10 per cent.

  • Those earning income above 9 Lakh up to 12 Lakh will be taxed at a rate of 15 per cent.

  • An income of more than ₹12 Lakh and up to ₹15 Lakh will be taxed at a rate of 20 per cent.

  • Individuals with a taxable income exceeding Rs 15 Lakh will be taxed at a rate of 30 per cent.
     

But fret not if you depend on the standard deductions to reduce your tax burden. The new tax regime will co-exist with the old regime, and taxpayers can choose one based on their income, nature and extent of investments and financial goals.
 

In 2023, which tax regime can help you save more? If you are looking for the answer, you need to know the available reliefs in the old and new tax regimes. Read on to understand the exclusions and benefits of the new taxation system and make an informed choice.
 

 

Which deductions are allowed in the new tax regime?
 


 

Let us look at the standard deductions / exemptions available in the new tax regime:
 

  1. Employers’ contribution to your National Pension Scheme (NPS)/ Employee’s Provident Fund (EPF) account: Exemption applies to a maximum contribution of ₹7.5 Lakh per year for all such pension accounts.
     

  2. Amount withdrawn from NPS: You can withdraw up to 60% of your NPS account balance at maturity without having to pay tax. Partial withdrawals of up to 25% of your self-contribution are also tax-free.
     

  3. Interest earned from EPF: If the interest generated in a year from your EPF does not exceed 9.5%, it will not get taxed.  
     

  4. Gratuity: If you receive gratuity from your employer, you can avail of exemptions on it up to a specified limit. Gratuity paid on the death of an employee is fully exempt.
     

  5. Interest on post-office savings account: You can claim relief on a defined percentage of your post-office savings account interest.
     

  6. Life insurance maturity benefit: Although the life insurance premiums are not eligible for deductions, the amount received at maturity is tax*-exempt under Section 10(10D).
     

  7. Leave encashment: When you retire, you can encash the leaves you were entitled to but did not take during your work life. This income is not taxable up to a limit of ₹3 Lakh for non-government employees.
     

  8. Voluntary Retirement Scheme (VRS) payment: If you retire voluntarily, then up to ₹5 Lakh received from your employer as benefits will not be taxed.
     

  9. Public Provident Fund (PPF) and Sukanya Samriddhi Account earnings: The interests earned and maturity amounts received from your PPF account and Sukanya Samriddhi Yojana scheme is tax-exempt.
     

  10. Allowances for official duties: The permissible deductions include:

    a) Transport allowances for specially-abled individuals

    b) Allowance to cover transportation costs for official purposes

    c) Compensations for travel expenses on office tours or transfer

    d) Daily allowances for “ordinary regular charges” or expenses for office duties at a location away from your regular workplace
     

     

What are the benefits of the new tax regime?
 

The government introduced the new tax regime to reduce the Indian taxpayers’ tax burden. This new system simplified the tax laws, removing the complicated calculations of deduction percentages.
 

Often taxpayers have to lock up their earnings in tax-saving instruments to avoid heavy taxation. Often, such investments happen at the last moment when the financial year is about to end. Not much thought goes into the monetary benefits or wealth creation for long-term goals.
 

Thus, your finances remain blocked, and yet you fall short of funds for your aspirations.
 

The new concessional regime helps you save on taxes without such instruments.
 

 

How to choose between the old and new tax regime?
 

For income tax calculations on your FY2021-22 earnings, you can select either of the two tax regimes. But for efficient tax planning, you need to analyse the old vs new tax regime and decide which one works better for your financial situation.  
 

Consider the following parameters:
 

The exemptions you currently avail: If you earn a salary, your income may include:
 

  • House Rent Allowance (HRA) if you live in a rented accommodation

  • Food coupons

  • Compensation for phone bills

  • Leave allowance (LTA)
     

You will lose the exemptions on these under the new regime.
 

The deductions you already claim: A salaried individual is automatically eligible for ₹50,000 standard deduction and EPF contribution relief. The new taxation rules exclude these.
 

Moreover, you cannot claim deductions for:
 

  • Home loan EMI for self-occupied property

  • 80C investments – life insurance premiums, ULIP premiums, NPS investments, ELSS investments, etc.

  • 80D investments – health insurance premiums, health insurance riders#, etc.
     

You need to find out the total amount of such exemptions and deductions you avail. Subtract it from your income and calculate the tax payable under the old regime.
 

Next, compute what your taxable income will be without claiming such benefits. Find out the tax payable as per the new tax slabs.
 

Compare the two amounts to make your selection. Also, you can use the income tax department’s tax comparison tool available on their official website.
 

However, your investments should never be based solely on tax savings. You must think of your family’s financial security in case of an unfortunate event. Also, you need to create enough funds for life’s milestone events, such as:
 

  • Children’s college admission

  • Weddings

  • Retirement
     

Hence, you should select investment plans that enable you to amass the corpus for such life goals. 
 

 

Should I buy life insurance under the new tax regime?
 

Yes, a life insurance policy is necessary, irrespective of which tax* regime you choose. This is because life insurance benefits protect your family in different situations and emergencies. Be it the death benefits or the maturity benefits of your life insurance policy, your financial goals and your family’s future financial security can be easily taken care of by your life insurance policy. However, it is important to ensure that the coverage you select should be adequate for all of their needs.
 

However, under the old tax regime, it is possible to claim tax* deductions on life insurance premiums. Since the old tax regime allows for Section 80C deductions on investments, you can also claim a tax deduction of up to ₹1.5 Lakh per year. This can be done when you are filing your income tax returns each year. While this tax deduction on life insurance premiums is one of the few reasons why people buy life insurance, it should not be the primary or sole reason for getting life insurance coverage.
 

The same tax benefit will not apply to your life insurance premiums if you opt for the new tax regime.
 

The older tax regime is appropriate for those who already have life insurance policies and have been claiming tax* deductions on the premiums over the years. For such taxpayers, these tax deductions translate into greater savings on their life insurance policy.
 

While you should certainly aim to get adequate life insurance coverage and also save tax on your policy, ensure that you choose the tax* regime only as per your convenience.
 

Tata AIA offers several savings solutions that serve this purpose. The plans and their hallmark features include:
 

  1. Tata AIA Life Guaranteed3 Return Insurance Plan - An Individual, Non-Linked, Non-Participating, Life Insurance Savings Plan (UIN:110N152V11)
     

    • Choice of three plans – endowment, whole life income, and regular income

    • Assured payouts, keeping your money secure

    • Guaranteed3 additions to increase your profits
       

  2. Tata AIA Life Insurance Fortune Guarantee7 Plus - A Non-Linked, Non-Participating, Individual Life Insurance Savings Plan (UIN: 110N158V09)
     

    • Choice of income plans
       

  3. Tata AIA Life Insurance Guaranteed4 Monthly Income Plan - A Non-Linked, Non-Participating Individual Life Insurance Savings Plan (UIN: 110N147V02)
     

    • Guaranteed4 monthly income for double the policy tenure

    • Option for a premium boost to enhance your corpus
       

  4. Tata AIA Life Insurance Diamond Savings Plan - A Non-Linked, Participating Individual Life Insurance Savings Plan (UIN: 110N133V02)
     

    • Guaranteed5 income during policy term

    • Possibility for additional gains with bonuses2
       

  5. Tata AIA Life Insurance Gold Income Plan - A Non-Linked, Non-Participating, Individual Life Insurance Savings Plan (UIN: 110N131V02)
     

  • Guaranteed6 income starting 12% of the sum assured

  • Increasing income during income term with more premiums
     

     

Conclusion
 

Your taxation regime selection should take into account possible savings under each system. But your life insurance selection should not depend on tax savings. Choose a savings-linked insurance product, protect your family’s finances against unforeseen events, and meet your life goals.



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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and they will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry

  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

  • Past performance is not indicative of future performance.

  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

  • Please make your own independent decision after consulting your financial or other professional advisor.

  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.

  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office

  • 3Guaranteed Addition (Endowment option)defined as a percentage of GMB shall accrue at a simple rate for each completed policy year, throughout the Policy Term and shall be payable on Maturity or Death whichever is earlier, subject to all due premiums being paid. GA shall accrue @ 5% of GMB.

  • 7Guaranteed Annual Income” shall be a fixed percentage of the Annualised Premium / Single Premium (excluding discount) payable in a year. Guaranteed Annual Income as per the chosen Income Frequency shall commence after maturity till the end of the Income Period, irrespective of survival of the life insured(s) during the Income Period.

  • 4Guaranteed Monthly Income is a percentage of Total premiums Paid, depending on the age at entry and the chosen Policy Term. It is payable in arrears for 10,16 and 24 years for a policy term 5,8 and 12 years respectively, starting from the end of 1st month after the end of Policy Term.

  • A 5Guaranteed Income of Assured Benefit shall be paid annually commencing from the end of next policy year after premium payment term till maturity of the Policy or till death of the Life Insured, whichever is earlier.

  • 6Guaranteed returns are defined as Guaranteed Maturity Benefit equal to 100% of the Basic Sum Assured and Guaranteed Income is equal to 12% of Basic Sum Assured, shall commence from the end of the year following Maturity which increases annually(Compounding increase) by an Income Booster.