Case 3: If your annual income is above Rs 5 lakh Let's assume your annual income is Rs 6 lakh. In the earlier tax regime your tax liability (assuming your investments to be zero!) would have been: Rs 1.95 lakh to Rs 2.5 lakh at 20% = Rs 11,000 Rs 2.5 lakh to Rs 6 lakh at 30% = Rs 105,000 So Rs 11,000 + Rs 105,000 = Rs 116,000
In the new tax regime your tax (assuming your investments to be zero!) will be: Rs 2.25 lakh to Rs 3 lakh at 10% = Rs 7,500 Rs 3 lakh to Rs 5 lakh at 20% = Rs 40,000 Rs 5 lakh to Rs 6 lakh at 30% = Rs 30,000 So Rs 7,500 + Rs 40,000 + Rs 30,000 = Rs 77,500 This translates into a tax saving of Rs 116,000 - Rs 77,500 = Rs 38,500
Still the annual tax liability stands at Rs 77,500. Saving this amount becomes the top concern.
Investment options: Besides the bank FDs and ELSS, Sridhar recommends investing in long-term (1 year and above) fixed maturity plans (FMPs) for senior citizens in the top tax bracket. "The reason behind this is the high yields ie between 8.5 and 9.5% annually post tax," explains Sridhar. This makes FMPs an attractive option. Moreover Sridhar recommends a better contingency fund if you can afford it.
What you should not do: 1. "ULIPs are still a no-no as an investment class," says Sridhar. 2. Opening a new PPF account or a long-term postal deposit.
The verdict: Remember: your final financial plan will depend on your asset base, income flow, cost of living (lifestyle), health conditions and dependents, if any.
If your existing investments are not sufficient to support your lifestyle, then make use of cash flows through reverse mortgage of property that you are staying in. These cash flows would not be taxed as per changes announced in this year's Union Budget.
"No doubt the new tax regime has made more money available in your hands. But before you take a call on what is to be done, contact an expert and make an informed decision based on the above parameter,' concludes Sridhar.
