Jan-Feb-March or JFM: It is that time of the year when many of us scramble to get our tax savings for the financial year. To help you with your tax-saving exercise for the financial year 2023-24, here are six easy tax-planning tips.
Your complete tax-saving guide.
1.Tax-saving instruments
Each fiscal year presents an opportunity to reduce your taxable income by up to Rs. 1.5 lakh through Section 80C deductions. These deductions are accessible to both individuals and Hindu Undivided Families (HUFs), allowing a maximum deduction of Rs. 1.5 lakh from your overall income under Section 80C. Thus, even if you’ve chosen the traditional tax regime, you can still leverage deductions up to Rs. 1.5 lakh under Section 80C. It’s essential to recognize, however, that these deduction provisions don’t apply if you’ve opted for the new tax regime.
Here is a look at some of the tax-saving investment products in the section 80C basket:
- Employees’ Provident Fund (EPF)
- Public Provident Fund (PPF)
- Fixed deposits (tenure of 5 years or more)
- Life insurance policies
- ELSS mutual funds
- National Pension Scheme (NPS) and other pension plans
Also read: How section 80C of the Income-tax Act can help you save tax
Also read:Income tax deductions available under section 80C in India
Investing wisely in these financial instruments can achieve the dual objectives of meeting financial targets and enjoying tax benefits (up to an investment limit of Rs 1.5 lakh per financial year) simultaneously. However, tax benefits are applicable only under the old tax regime. Opting for the new tax regime, which provides concessional tax rates, means forfeiting many tax deductions and exemptions, such as the section 80C benefit. For individuals under the new tax regime, investments in these instruments will solely contribute to achieving financial objectives rather than tax savings.
2.Select appropriate components in salary structure
For salaried individuals, it’s advantageous to assess the salary structure provided by the employer and select components that optimize tax advantages. For instance, choosing House Rent Allowance (HRA) if renting, seeking reimbursement for telephone/internet expenses, education allowances, food coupons, etc., can be beneficial. Subsequently, one can claim relevant deductions/exemptions according to specified conditions when calculating taxable income.
Also read: 7 lesser-known investments, expenses eligible for tax breaks
3. Increase in EPF contribution
Salaried individuals have the option to consider making extra contributions towards the ‘Voluntary Provident Fund’ (VPF) alongside their EPF contributions if they haven’t reached the investment limit of Rs 1.5 lakh. These additional contributions can also be deducted from taxable income, subject to certain conditions. Furthermore, the employer’s contribution to the National Pension System (NPS), capped at 10% of salary, can offer additional deductions to the employee.
4. Avail tax benefits on a home loan
If a housing loan is obtained from a financial institution like a bank, NBFC, or housing finance company for purchasing or constructing a house property, the interest and principal payments made on the loan can be claimed as deductions from taxable income, within specified limits under tax regulations. However, these tax savings are applicable only if the old tax regime is chosen. It’s important to note that the deduction on the principal repayment amount is subject to the overall Rs 1.5 lakh limit under Section 80C.
Also read: Best ways to save income tax: 10 tax-saving investment options for you
5. Avail tax benefits of health insurance
Income tax regulations offer deductions for premiums paid towards health insurance covering oneself, spouse, dependent children, and dependent parents. Therefore, individuals can purchase health insurance for themselves and their family members to cope with medical expenses during health emergencies while simultaneously benefiting from tax advantages for the premiums paid towards these policies. The deductions allowed are up to Rs 25,000 for self, spouse, and dependent children, and up to Rs 50,000 for senior citizen parents, as applicable.
Likewise, if senior citizens are not covered by any health insurance policy, they can still claim a deduction of up to Rs 50,000 for medical expenses incurred during the year.
6. Choose the right tax regime
The government introduced a new simplified optional personal income tax regime starting from the financial year 2020-21. Under this regime, individuals or Hindu Undivided Families (HUFs) have the choice to pay taxes at reduced slab rates, applicable without certain exemptions and deductions, provided certain conditions are met. Consequently, individuals can compare the tax payable under the existing and new tax regimes and opt for the one that offers more benefits from a tax perspective.
Also read: How to switch from new tax regime to old tax regime for FY23-24
