DP Associate
Chief Insurance and Financial Planner
INSURANCE
Insurance plays a crucial role in both personal and business contexts by providing financial protection and peace of mind in various situations. Here are some key points highlighting the importance of insurance:
Risk Management: Insurance is a fundamental tool for managing risks. By transferring the financial burden of a loss to an insurer, individuals and businesses can mitigate the impact of unexpected events like accidents, natural disasters, or illnesses.
Financial Stability: Insurance helps maintain financial stability. For individuals, it means protection against large, unexpected expenses. For businesses, it ensures continuity by covering losses that could otherwise jeopardize operations.
Legal Requirements: Certain types of insurance, such as auto insurance, are legally required in many places. In the business world, companies might be required to have specific insurance policies like workers' compensation or liability insurance.
Health and Well-Being: Health insurance is vital for accessing healthcare services. It covers medical expenses, which can be prohibitive, ensuring individuals receive necessary medical care without undue financial strain.
Asset Protection: Insurance protects valuable assets. For instance, home insurance covers damage to a residence, while auto insurance covers vehicle-related damages.
Peace of Mind: Knowing you are insured can provide peace of mind. It allows individuals and businesses to take calculated risks, which is essential for growth and innovation.
Creditworthiness: For businesses, having insurance can enhance creditworthiness. It assures lenders that losses can be covered, thereby facilitating access to credit.
Economic Growth: Insurance also contributes to the broader economy. It mobilizes savings, provides funds for investment, and helps mitigate losses in times of disaster, thereby stabilizing the economy.
Support in Legal Matters: Liability insurance provides protection against legal claims. If a business or individual is sued, certain insurance policies can cover legal defense costs and settlements.
Estate Planning: Life insurance is a key element in estate planning. It provides financial support to beneficiaries after the policyholder's death, helping to cover debts and living expenses.
TAX & SAVINGS
Old Tax Regime
Deductions and Exemptions: The old regime allowed for around 70 deductions and exemptions, including the Public Provident Fund (PPF), National Pension Scheme (NPS) investment, health and life insurance premiums, home loan principal and interest, children’s tuition fees, and the Senior Citizens Savings Scheme.
Additional Benefits:
Section 80C offers tax savings of up to Rs. 1.5 lakhs for investments in insurance, ELSS, pension plans, etc.
It is more favorable for low-income earners.
Encourages investment habits for wealth building.
Tax Slabs: Income up to Rs 2.5 lakh is exempt from tax; 5% tax on income over Rs 2.5 lakh to Rs 5 lakh; 20% tax on income above Rs 5 lakh to Rs 10 lakh; and 30% tax on income above Rs 10 lakh.
Standard Deduction: Eligible for an upfront standard deduction of Rs 50,000.
New Tax Regime
Tax Slabs: The new regime offers tax exemption up to an annual income of 3 lakhs. The tax slabs are:
0-3 lakh: Nil
3-6 lakh: 5%
6-9 lakh: 10%
9-12 lakh: 15%
12–15 lakh: 20%
Above 15 lakh: 30%
Rebate and Standard Deduction:
A complete tax rebate is available up to an income of 7 lakhs per annum (previously 5 lakhs).
An upfront standard deduction of Rs 50,000 is now available, similar to the old regime.
Family pensioners are eligible for a standard tax deduction of Rs 15,000, or 1/3 of the pension amount.
Flexibility: You can switch to the old tax regime if desired by submitting Form 10IE.
Default Option: From FY 2023–24, the new tax regime is the default option.
Comparison and Considerations
Income Level: The new regime is more attractive for those earning up to Rs 7.5 lakh annually, thanks to the Rs 50,000 standard deduction, which makes them eligible for a rebate on income up to Rs 7 lakh.
Tax Deductions: In the old regime, deductions under Section 80C, Section 80D, etc., could significantly reduce taxable income. For example, with a salary of Rs 9 lakh, it's possible to bring taxable income down to zero.
Tax Liability: Under the new regime, an individual with an annual income of Rs 9 lakh would pay Rs 45,000 in tax, as deductions are not available to reduce taxable income.
Simplicity vs. Savings: The new regime is simpler but offers fewer opportunities for tax savings through deductions and exemptions compared to the old regime.