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Tax reforms have conventionally been considered to be a rather contentious area that was left untouched by most in the past. However, the finance minister ventured into this contentious territory and has emerged standing tall!

As a part of the process, benefits under Section 88 have been scrapped and Section 80L has been omitted. Instead the finance minister has proposed a new regime wherein each taxpayer will be allowed a consolidated limit of Rs 1 lakh for savings.

Simply put, investors can now make investments up to Rs 1 lakh, from their income chargeable to tax; the same will be treated as a deduction from the income.

More importantly all prevailing sectoral caps have been removed i.e. within the abovementioned Rs 1 lakh investors will have a free hand to make investments as per their own choice.

This is contrary to the earlier regime wherein Section 88 benefits could be claimed by investors subject to stated upper limits e.g. investments in equity-linked savings schemes (ELSS) had a cap of Rs 10,000 for the purpose of claiming tax benefits.

Also deductions in certain areas like interest payments towards home loans, contributions towards medical insurance premium, interest on loan taken for higher education etc. have been left unchanged. Investors are free to claim benefits from the same over and above the stipulated Rs 1 lakh investments.

A new tax structure has been introduced as well,

New tax brackets and rates
Taxable income Rate of tax
Upto Rs 100,000 Nil
Rs 100,000 to 150,000 10%
Rs 150,000 to 250,000 20%
Above Rs 250,000 30%


The income level for applying the 10% surcharge has been hiked from the erstwhile Rs 8.5 lakh to Rs 10 lakh at present.

What does the budget hold for retail investors?
Retail investors have every reason to rejoice. While Section 88 benefits and Section 80L have ceased to exist, investors continue to have the opportunity to reduce their tax liabilities by investing the earmarked sum of Rs 1 lakh.

Investments in small savings schemes, ELSS, contributions to insurance policies and pension plans etc have all been made a part of the eligible Rs 1 lakh. On a positive note, tax benefits will no longer dictate investors' investment decisions.

Now investors have the opportunity to create a portfolio based on their individual preferences and needs rather than from the tax-saving perspective.

Hence if you are an investor with a high-risk appetite, invest a significant portion of your portfolio to ELSS, on the contrary retirees and conservative investors can opt for the small savings segment.

In the erstwhile tax regime, investors with a gross total income of more than Rs 5 lakh could not claim any benefits under Section 88; this disparity has been done away with since investors across tax brackets can utilise the Rs 1 lakh deduction.

The new tax regime permits investors to plan their finances as per their individual needs, which is a basic tenet of financial planning; the finance minister undeniably deserves a round of applause for his efforts.
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