Sharma jee was absolutely thrilled when he heard about the new budget. With the significant tax rebate, his income up to ₹12.75 lakhs would be virtually tax-free! He couldn’t wait to share the good news with his friend, Verma jee. Upon hearing this, Verma jee agreed that the new budget indeed reduces the tax burden. However, he had a word of caution. The new budget code lacks incentives for forced investments due to tax-saving measures. Notably, the new tax code has no exemption for Section 80C investments, which previously enforced a savings of ₹1.5 lakhs. Additionally, the exemption of ₹50,000 above the 80C limit for NPS Tier 1 investment is also missing. To top it off, there are no exemptions for essential items like health insurance or life insurance, which are crucial for avoiding financial catastrophes.
Important Points to Note
- Increased Tax Rebate: Income up to ₹12.75 lakhs is now virtually tax-free.
- Lack of Incentives for saving in new tax regime : No exemptions for Section 80C investments, removing the forced savings of ₹1.5 lakhs.
- Lack of any exemptions for NPS in new tax regime : The extra ₹50,000 exemption above the 80C limit is no longer available.
- Essential exemptions missing in new tax regime: No tax exemptions for health insurance or life insurance, which are vital for financial security.
- While lack of these exemptions doesn’t mean one will have to pay more taxes but it just means that he or she has more freedom to spend then to save. While this may sound good in short-term, over long-term this has the potential to have serious negative impact on financial security and resilience of a person. Sometimes, behavioural economics suggest that people need a nudge to save for future. Research has shown that people have less motivation to do the right thing or beneficial thing for them if fruits of their actions are visible only in distant future.
Conclusion
The new budget certainly offers significant relief in terms of tax rebates, making higher incomes virtually tax-free. However, the removal of forced savings incentives and essential exemptions means individuals must take personal responsibility for investing their tax savings wisely. Financial security should not be compromised by the allure of immediate gratification and satisfaction of spending.
As the renowned investor Warren Buffett once said, “Do not save what is left after spending, but spend what is left after saving.” This wise advice is particularly relevant in the context of the new budget, reminding us of the importance of prudent financial planning even in times of tax relief.
Verma jee, always the voice of reason, emphasized to Sharma jee that a significant portion of tax savings must be wisely invested for future financial goals. He warned against the temptation to be careless and avoid saving for financial security, hinting that it could be a catastrophic mistake in the long run.
Disclaimer: The above content is just for information and should not be construed as an offer to buy or sell or recommendation. Contact your financial advisor for guidance on any investment related query.
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