The new tax code offers a little extra in terms of your take-home salary by tweaking tax brackets and increasing tax deductions. But you will have to rework your investing habits a bit in the financial year 2012-13 (when the Direct Tax Code gets functional) and change the way you invest in order to get the maximum benefit that the government plans to offer.
While equity linked saving schemes (ELSS) and unit linked insurance plans (ULIPs) have been excluded from the Rs 1 lakh deduction benefit, life insurance, medical insurance and child's education will qualify for an additional deduction of R50,000.
New pension system (NPS) that is one of the few products that qualify for the R1 lakh deduction to be claimed under section 80C is likely to get an impetus and an important component in everyone's portfolio after having received a weak response in its initial 14 months of existence.
The government has even proposed to tax your insurance benefit if you survive the tenure of the cover, a move that equates it to mutual funds.
"The maturity proceed from an insurance policy will not be taxed only if it is received after the death of the insured and be taxed otherwise," said Nikhil Bhatia, executive director, PwC.
Experts say that this will bring a change in the way people put their money in insurance products as they will move away from insurance to provident funds.
{{/usCountry}}Experts say that this will bring a change in the way people put their money in insurance products as they will move away from insurance to provident funds.
{{/usCountry}}"The insured will have to change his thinking and work with the assumption that the maturity proceed will be taxable," said Surya Bhatia, a Delhi-based certified financial planner. Home loans will continue to get the benefit as deduction of R150,000 will be available towards the interest payment of home loan.
While benefit on long-term capital gains promotes investors to go for an aggressive wealth building, the approved instruments that qualify for the deduction under section 80C (excludes ELSS and ULIPs) calls for a conservative savings approach.