How tax-saving and economic well-being come hand in hand with the old tax regime?

It is widely accepted notion that tax breaks on investments push people to save more. The latest tax regime has taken away this incentive to save. The deductions in the taxes make sure the financial wellbeing of the taxpayers. Do you know about the role that deductions play in your financial plan?

When the Budget of 2020 was proposed a new tax regime with lower tax rates was announced, the aim was to provide individuals the benefits of a short-term liquidity or cash flow. However, the new tax regime prohibits most of the tax exemptions that taxpayers normally claim to assist their family’s financial needs.

It is highly recommended taxpayers to stick with the old tax regime, the one that existed in FY 2019–20 and not to step out of their comfort zone. The old regime is way better because the various tax deductions and exemptions can effectually minimize the tax on a CTC of Rs 10 lakh to almost zero. Furthermore, the deductions help in employing the money to ensure your family’s financial well-being. There is also a standard deduction for salaried individuals of almost Rs 50,000 and ones who are drawing a pension from their employers. It is not essential to submit any bill for this deduction.

We believe it is preferable to manoeuver your arduously earned money into tax-saving options which can fulfill your family’s financial needs or may save it for later. To comprehend this better, let’s take a look at the tax saving options available under old tax regime and the role which they play in the financial plan of an individual.

Deductions and exemptions under the new tax system:

1. Allowance on house rent
   Most taxpayers, especially the younger generation, live in rented accommodation. A taxpayer can claim exemption or some deduction on the rent paid, thus minimizing the full impact of the expense.
2. Saving for future financial purposes
   Sec 80C states that the investments are not eligible for deduction as per new tax regime. Hence, it is taking away the incentive that nudge people to save more from these tax breaks.
3. Buying or building your dream home
   Everybody dreams to own a house but with this new tax regime, the interest paid on a home loan is not eligible for tax deduction unlike the old tax regime. To add to this, the principal repayment amount is also non-eligible for any deductions under the new tax regime.
4. Premium on medical insurance
   In case of a medical emergency, a health plan is proven to be helpful in avoiding the sale of assets or borrowing from relatives. In absence of medical cover, one may be unable to afford the best treatment available.
5. Life insurance
   People dream to live up to 100 years but we all know that life has no expiry date. The old system lets you buy life insurance and claim deduction on the premium paid.
6. Education & marriage of children
   To provide ‘best education’ to their children is the ultimate aim of all the parents. Old tax regime offers deduction on children’s tuition fee, interest on education loans and also for various investments done for that purpose.
7. Family travels
   Once the lockdown is over for once and all, wouldn’t you want to take your family for a holiday? Up to 30% off can be availed on the air and railway ticket if you get LTA, but wait LTA is not tax free under the new regime.

So, just stick to the old tax regime as discussed above.