Forget 80C; New Budget Promises Higher Take Home Income

Like every year, taxpayers had been hoping for announcements that would lighten up their tax burden. The general expectation was that of enhanced section 80 limits; i.e., 80C and 80D at least.

However, none of this happened. There were no changes in 80C or 80D limits or even the income tax slabs:

However, there was still something to cheer for, especially for the taxpayers in 5 and 20% tax slabs.

Budget 2019: For the Common Tax Payer

Rebate on Income Tax

The most notable improvement for taxpayers earning up to Rs. 5 lakh a year is the increase in a tax rebate of up to Rs. 12,500 from Rs. 2500. Earlier this rebate under Section 87A of the Income Tax Act was limited to the taxpayers with income up to Rs. 3 lakhs.

However, the current increase in the rebate benefits a large section of individual taxpayers.

Standard Deduction Increased

The standard deduction has been increased from Rs. 40,000 to Rs. 50,000 in the new budget offering relief to taxpayers with salary income up to Rs. 10 Lakhs. Therefore now, while an individual taxpayer with annual income up to Rs. 5 lakhs will have zero tax liability, taxpayers falling into 20% tax bracket may also enjoy significantly lower tax liability with current 80C savings:

Apparently, the savings go up as the income reduces, as per the new budget.

Also, the new changes have increased the take home for individual taxpayers falling in 30% tax bracket (income above Rs. 10 lakhs).

Using Additional Money for a Solid Future

The additional savings, although may seem small, can be great for embarking on your wealth building plans early on, especially if you are one of the young freshly employed taxpayer. The savings with the new budget can range from Rs. 1000 to Rs. 2000 per month depending on your income.

Investing the Money

There's no doubt that you should start investing early. However difficult it may be at the moment, understand that time is a major factor in growing invested money. So much so that Rs. 1000 invested now could easily beat Rs. 2000 invested five years later in a 10-year investment.

Here are few instruments you can redirect your additional savings for a wealthier future:

Mutual funds: You can start your SIP in various mutual funds based on your comfort and investment tenure, with an amount as low as Rs. 500 per month. While equity funds offer the high-risk-high-growth potential to your money, you will need to stay longer in these funds compared to low-risk-stable-return debt fund options.

Unit Linked Insurance Plans (ULIPs): ULIPs are the best investments for wealth creation. ULIP benefits include multiple fund options, switching facility between funds, top-ups, tax benefits, etc. Moreover, ULIPs also provide life cover for your family. You can compare multiple ULIP plans for premium payment mode, fund performance, charges levied, claim settlement ratio, etc.

Buy Insurance

Term Life Insurance: Term insurance plan is the most basic financial safety cushion you can offer to your family. Buying early can ensure lower rates along with financial protection, peace of mind, and tax benefits. Do check the claim settlement ratio of the insurers while selecting your plan. Currently, Max Life Insurance has the highest claim settlement ratio of 98.36%.

Health Insurance: Health plans help you bear the cost of emergency healthcare without hurting your savings. Health plans like cancer and critical illness plans can also provide you with crucial financial support for the treatment of life-threatening diseases.

The insurance plans also provide tax deductions under sections 80C and 80D of Income Tax Act and reduce your tax liability.

Invest Regularly to Save Maximum

Spread out your tax saving or otherwise investments throughout the financial year. This will help you avoid draught months in the end and maximize your savings.

You can use your income tax form 16 from your employer to plan your investments. The income tax form 16, will also come in handy while filing the ITR online.

Regular investments (like Rs. 1000 every month) will help you invest in more aggressive instruments like equity funds while keeping your overall risk lower. Regular investing builds your wealth steadily and helps you taper off your financial goals effortlessly.

Thus, use your savings after Budget 2019 to boost your wealth and increase your savings for the future.