New things to know about new tax regime?

Anil Rego, Founder & CEO, Right Horizons, says “for lower tax slabs, typically the new tax regime is better. But for somebody in the higher tax slabs and when you are using all the deductions well, including your home loan interest, that is when you have to opt in. The change that is happening is by default you are going to be into the new tax regime. If you want to go to the old tax regime, now you have to opt in to go to the older tax regime. That is something that you would need to take care of.”

The first change or a very known change is the default adoption. By default, the new tax regime would be selected for you and if you do not want to be in that tax regime, you will have to go and select the old tax regime option.

Anil Rego: So, definitely, one needs to choose between the old and the new. So the point is, when do you choose between the old and the new scheme tax regime. Typically, the old tax regime is beneficial for those who take advantages of a number of the deductions and especially if you have a home loan and you are taking advantage of both Section 80C and a good part of the home loan interest, then most probably, you should continue to be with the old tax regime.


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What I would suggest is if you are able to go back and calculate it and then make a decision because the devil is in the details. What if the interest on your home loan is low? It may just make sense again for you to go to the new tax regime.

So, what are the benefits of the new tax regime? The benefit of the new tax regime is that you have lower tax slabs, but you do not get your deductions. It is simpler and simplified. So, it makes sense for you to go for the new tax regime if you do not have too much tax saving investments. But you would ideally need to compute it. It would depend from slab to slab.

For lower tax slabs, typically the new tax regime is better. But for somebody in the higher tax slabs and when you are using all the deductions well, including your home loan interest, that is when you have to opt in. The change that is happening is by default you are going to be into the new tax regime. If you want to go to the old tax regime, now you have to opt in to actually go to the older tax regime, so that is something that you would need to take care of.

We also have the new tax slabs which were introduced earlier. But we are also getting some benefits as per the new tax regime. What are those?

Anil Rego: Yes, so, basically, a whole lot of the lower slabs are the major benefit that you get. Your tax saving will be higher and it can be substantially higher especially for the lower tax slabs and if you are not using all your deductions.

We are also getting the benefit of standard deduction as per the new tax regime?

Anil Rego: Yes, so the standard deduction is something, again, that you will have to incorporate in and use it for the computation and that is why it is good to go back and compute it both in the new and the old regime. Ideally, if you have a tax consultant, then that is something you can do. There is a lot of information out there on the web and you could use and take advantage of.

So, as per the new tax regime, there are two benefits for all the new tax regime or the new tax regime payers. A standard reduction of 50,000 and you have the pension income benefit as per Section 80CCD(2), deduction of employers contribution to the NPS account. These are the benefits that you as a new tax regime taxpayer can avail. You might want to help our viewers understand the benefit of getting your tax planning right. Why is it important?

Anil Rego: Yes. Coming back to the old and the new regime, the point is some of the deductions are also allowed for the new tax regime. Earlier they were not allowed. That is something which you can keep in mind. The second part of it is that the beginning of the year is the best time to sit back and plan the choice between the new and the old tax regime.

Secondly, if you go back to the old tax regime, then you have to plan for your investments out there. If you have to do a Section 80C, ELSS fund, etc, then that is something that you would need to plan for. The other part of it, like (9:26) said, actually, in some form the nature of the new tax regime does not necessarily encourage long-term investment or the compulsory investment that we used to do because of the tax savings.

It is even more important for you to step back and go back and compute all your savings and expenses, have a plan for yourself for the year and set up your SIPs. This is the time to review it as well, your investments, go back and see have you distributed your investments across various categories? Do not always go by what has happened very well in the past

In the past, mid and smallcaps have done very well. There are cycles between mid and smallcaps and largecaps. So, you need to be a little diversified across and especially if there has been great outperformance from any one of them, the chance in the future is that it takes a breather and the other one starts doing well. So, it is good to be disciplined.

In all market conditions I have both large, flexi, mid and smallcaps but I could maybe play around a little bit with the weightages and also I could switch depending on where I have done very well. In fact, what we like to do is to be a little contrarian where we have excess returns in a particular category in some form, just keep booking a little bit of profits and do a slight transition to the other category. That discipline will help you do that.

Harry Byrne

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