Budget 2023 has further reduced Income tax liability in the new income tax regime in India . There is no tax liability upto Rs.7 Lakhs income . You will find lots of number crunching exercises on LinkedIn and other social media platforms to compare which regime is beneficial for tax payers; however my understanding is that this expertise is beyond numbers .This is about behaviour i.e. Saving Vs Spending.
You recall days when ITR was filed on trust basis (in fact today also it is the same). When you declare investment of Rs.1.50 Lakhs under section 80C , you are not supposed to attach any investment proof to the government. This responsibility is on the employer and in the case of self employed, it is purely based on their declaration .
During Financial 2021-22, all taxpayers have witnessed Annual Information Statement (AIS) and Tax Information System (TIS) where you will get details of all investments in mutual funds like ELSS , Fixed deposit etc. based on information submitted by financial institutions .
This is a question of ethics on the part of the taxpayer to claim deduction where you have actually invested otherwise it is manual exercise on the part of income tax to call for information. It is replaced by ASI and auto populated in ITR. Now the government has taken one more step with the new tax regime whereby you don’t have to worry about investment proof at all . Just declare income and pay tax and move on. Tax payers are more empowered .
New generation is not interested in investing in PPF for 15 years. They can invest in equity mutual funds through mobile apps and need money anytime . They may not invest at all . What the government has tried to do is that if you don’t want to invest just for the sake of tax saving, don’t invest . I agree with this approach however it has some limitations . When you start investing in ELSS for 80C purpose, it creates behavioural change for investment and really helpful when you need this money as per your financial goal. If you are moving to a new regime, it requires a high amount of discipline for investment. It may happen that , taxpayer may spend an amount on discretionary expenditure.
You may argue , so What ? It is their money they can decide where to spend. They can buy an iPhone or go on vacation . Agree but based on my experience and understanding, investment is a habit and to get full use of compounding , you should start investing early .
Further removing exemption on income generated from insurance policy exceeding premium payment of Rs.5 Lakh is also a game changer. This will impact insurance companies but the government is very clear that you should consider insurance as risk cover and not as an investment tool or saving taxes . Still a long way to go for the term insurance market. Do buy term insurance at least 10 times of Annual income + any debt (home loan etc. liability with you) irrespective of the fact that you will not get 80C deduction in new tax regime . Buy term insurance first before starting the investment journey.
So coming back to Saving vs Spending . You can do calculations for old and new tax regimes but the important part is not to miss the investment journey . Starting Equity Mutual fund SIP early will help to create wealth in the long term . Investment in Equity Mutual Fund is subject to risk profile of investor and investment is subject to market risk. One has to take professional advice before investing. Now you have more freedom to plan your investment as your investment is not link with tax saving goals . Do take advantage of tax saving in the new regime and do your Financial Planning .
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