USE A CALCULATOR, COMPARE


There is a widening in the gap in tax-free incomes offered by each of the two tax regimes. This year, it’s become considerably easier to choose one. As per the Finance Minister, two in three taxpayers have already moved to the new regime. But one must still decide what’s best for them. Use an online tax calculator. Compare your taxes under both regimes. After all, pretty much everyone has deductions like rent, provident fund, life and health insurance, children’s tuition fees, home loan or education loan payments. You may want to check if your deductions give you a lower tax liability under the old regime.


DON'T PANIC


The introduction of new taxes usually spooks the markets. We saw the markets swing wildly during the budget presentation. But don’t panic. When markets turn frothy, a correction can bring valuations back to where they should be. Focus on your long-term investment objectives. Keep investing and stay invested if you’ve not achieved your objectives. If you’re investing without an objective and were shocked by the market reaction to the budget, this is probably a good time for you to assess what you want to do.


EASY WITH F&O


A lot has been already said about futures and options trading. The SEBI chief Madhabi Puri Buch called it “a macro issue and not just a micro issue of investor safety”. Chief Economic Advisor V. Anantha Nageswaran said the potential for high profits “caters to humans’ gambling instincts”. But profit eludes most retail traders. The new budget has announced a higher tax rate on F&O transactions to 0.02% and 0.1%, respectively. With the regulators and the government ringing the alarm bells, it may be time for retail traders to consider if the F&O route with its inherent risks is viable for them. Wealth creation is a long-term goal. Most retail investors would be better off trying to achieve their goals sustainably rather than quickly.


EQUITY INVESTING


There’s now a higher tax on equity investing. Gains from investments held for under one year will be taxed at 20% and those over one year will be taxed at 12.5%. While this dampened the market sentiments, what doesn’t change is that equity still remains a great, cost-effective ways to create wealth over the long-term and achieve goals such as retirement or children’s education. Systematic investing via the SIP route in a diversified equity fund such as a Nifty50 index fund is great for such goals.


DEBT FUNDS


Mounting taxation means you must actively search for ways to reduce your tax burden. One area of unavoidable taxation in your wallet is your bank deposits. FD earnings are taxable even without liquidation, and there’s also an interest to pay on your tax if you don’t pay up in the financial year. One way to manage your liquidity needs without taking undue risks to your capital is through debt mutual funds. From a taxation point of view, they’re at par with FDs. Your returns will be taxed at your slab rate. However, you don’t need to pay TDS before redemption, and this can help you postpone your tax bill. This is a good time to lock into debt funds with interest rates appearing to peak. For higher safety, consider money market funds and liquid funds which offer low returns, easy liquidity, and relatively high capital safety. For longer durations, look at long-duration funds.


PROPERTY INVESTMENTS? KNOW THE CHANGES


Real estate holdings become long-term assets at the end of 24 months. Now, long-term gains will be taxed at 12.5%, a lower rate than the earlier 20%, but critically, the tax would be calculated without indexation benefit. This would mean a sizeable tax bill on long-term property holdings. Let’s understand this with an example. You bought a house for Rs 40 lakh in August 2008-09 and sold it for Rs 1 crore in August 2024-25. In the earlier rules, you would incur a capital loss of about 5.98 lakh on the sale and thus pay no tax on it. Under the new rules, the tax on you would be 12.5% of your gain, which is Rs 60 lakh, is Rs 7.8 lakh including the 4% cess. Surcharge may apply if your income exceeds Rs 50 lakh. There are ways to circumvent or delay the tax under the provisions of Section 54 which allows you to reinvest your proceeds in a new property.


GOLD GLITTERS AGAIN


The slashing of custom duty would spur interest in physical gold. Like with real estate, long-term gold assets will now be taxed without indexation at 12.5%. Globally, central banks are loading up on gold whose price has surged in the last five years with returns comparable to equity. Gold remains a useful hedge against uncertainty for all portfolios and you could certainly consider including it in the right proportion. There are also questions being asked over the continuance of Sovereign Gold Bonds, so you may want to read up on the trajectory gold bonds are taking.


DON'T FORGET INSURANCE


If you decide to move to the new tax regime, you’ll lose any deductions available through your life and health insurance policies. However, this should not deter you from having coverage. Protecting your finances against death and disease should remain one of your top objectives. If you have financial dependents, a term plan is a must. And a health policy for all members of your family is a must.


The author is the associate vice president, BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar.