Will there be any tax breaks under the Budget 2023 to make the New Income Tax Regime more attractive?

The Union Budget 2023-24 has introduced the new tax regime for individual taxpayers from February 1, 2023. The new tax regime introduces six tax slabs with different tax rates.

The new tax regime slabs are:

The old tax regime slabs are:

However, the new tax regime is a default scheme. An individual taxpayer still has the option to choose between the old and the new tax regime. In case a taxpayer fails to make a choice, they will fall under the ambit of the new tax regime automatically.

A key difference between the old and the new tax regime is that the new regime eliminates quite a few tax exemptions and deductions. This includes deductions and allowances such as the standard deduction, transportation allowance, and the entertainment allowance.

However, a few exemptions and deductions, such as those for house rent, medical expenses, and charitable donations, have not been changed.

The government, on its part, has promised to compensate for this rise by reducing the tax rates.

On their part, an individual taxpayer can look forward to a tax deduction of up to Rs 1.5 lakh for premium payment on insurance policies under Section 80C of the Income-tax Act (ITA), 1961. This deduction applies to policies taken out by the taxpayer, their spouse, or children.

Insurance as a Crucial Wealth Protection Tool

Insurance remains a crucial wealth protection tool and should be primarily incorporated into a financial plan. An unexpected illness, disability, or even death can strike at any time. Insurance ensures a solution to cover while continuing to pay living expenses. There is a bouquet of insurance policies available in the market. Some of the options include:

Life insurance: The policy ensures that the financial stability of a family remains unaffected by providing them a tax-free payment in the event of a policy-holders demise. Take into account the financial situation as well as the standard of living before zeroing in on a suitable life insurance policy.*

Disability insurance: A medical healthcare issue arising from injury, serious illness, or a mental health concern where an individual is unable to work, this coverage provides a monthly payment that replaces the income during that particular phase.*

Long-term care insurance: Such a policy provides a monthly payment if a policyholder is unable to their care because of an accident, illness, age-related issue, or mental health impairment. Also, this policy covers costs associated with obtaining assistance to manage day-to-day living activities.*

Insurance remains one of the crucial pillars of financial security. It remains useful tool to hedge against a financial situation in the future.

Among insurance, life insurance is a longer-term financial protection to the family of an insurance policyholder in case of one’s death or disability. As a pure risk or investment-linked policy, life insurances offer a guaranteed form of protection for the financial well-being of the family while also offering some investment returns. This is at lower rates than regular investment instruments, though. Similarly, health insurance aims to take care of the financial burden associated with escalating medical expenses.*

However, it needs to be understood that insurance is not an investment. For example, when an individual invests money in an asset class, there are certain expected returns. But in the case of pure-term insurance, it is only in the eventuality of the death of an insurance policyholder, the nominee gets something. Also, in case the policyholder survives, no one gets anything.*

Health Insurance as Critical Component in Financial Planning

A medical insurance policy or health insurance remains a crucial component in personal finance planning. A typical health insurance policy covers medical expenses for illnesses or injuries. It aids to reimburse bills or pays the medical care provider directly on behalf of a policyholder. A comprehensive health insurance covers the cost of hospitalisation, day-care procedures, medical care at home or domiciliary hospitalisation, and ambulance charges, to list a few.*

Apart from a cover against various diseases, health insurance plan helps in boosting tax savings as under Section 80D of the Income-tax Act (ITA), 1961, a policyholder can claim tax benefits against health insurance premium.*

The various types of health insurance policies available in the market, include:

Individual health insurance: This policy can provide coverage to an individual, spouse, children, and parents. Typically, such policies cover all medical expenses, including hospitalisation, daycare procedures, and hospital room rent, among others. As per an individual health insurance plan, every member has their sum insured amount.*

Family floater health insurance: This plan covers the family members under a single policy. The family members share the insured amount among themselves. Moreover, such plans are quite affordable than individual plans considering the sum insured is split.*

Senior citizen’s health insurance: These policies are known to offer additional coverage such as domiciliary hospitalisation as well as a few psychiatric benefits. A complete medical check-up beforehand would be required before purchasing this policy. Also, these policies could cost more on the higher side than regular insurance policies.*

Critical illness insurance: Lifestyle-related diseases such as cancer, stroke, kidney failure, and cardiac-related problems are covered in the ambit of critical illness insurance. This policy can either be purchased as a rider or add-on with a regular health insurance plan or as a separate plan. These policies offer coverage for specific issues and are known to provide claim payouts as a single lump sum payment after the diagnosis of a critical illness.*

Group health insurance: As the name suggests, such insurance plans can be useful for large groups. For instance, an employer may purchase such a plan as an additional benefit for every employee, or a building secretary may opt for this plan for all the residents in a building. Being quite affordable, a group health insurance provide cover in case of basic health issues.

*Standard T&C Apply

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.