If you still have not completed the tax-saving exercise for the financial year 2023-24, then you should hurry up as March 31, 2024 is the last date to do it. Remember, if the tax-saving related investments and expenditures are not made by you by this date, then your tax liability will be on the higher side for the current FY 2023-24.
It is important to remember that income tax laws for the new tax regime have changed from April 1, 2023. From FY 2023-24, the new tax regime has become the default tax regime. Hence, if an individual had not chosen a tax regime in April 2023, then the employer will deduct tax on salary (TDS) as per the income tax slabs in the new tax regime.
The income tax slabs in the new tax regime has been reduced to five from six. The basic exemption limit in the new tax regime has been hiked to Rs 3 lakh from Rs 2.5 lakh.
The new tax regime does not allow an individual to claim common deductions and exemptions available under the old tax regime. Some of the common deductions allowed under the old tax regime are specified investments and expenditures made under Section 80C for maximum limit of up to Rs 1.5 lakh, Section 80D deduction on premium paid for health insurance policy for self (including family) and parents, Section 80TTA deduction for interest earned from savings account (not applicable for senior citizens) etc. Similarly, a salaried individual can claim tax exemption on house rent allowance (HRA) and leave travel allowance as well under the old tax regime.For the current financial year, the new tax regime allows two deductions – a) Standard deduction of Rs 50,000 from salary and pension income and b) Employer’s contribution to employee’s tier-I NPS account.
However, an individual has the option to choose any tax regime at the time of filing income tax return irrespective of what is informed to the employer for TDS on salary. Hence, if you are planning to opt for the old tax regime while filing ITR for FY 2023-24 (AY 2024-25), it is important that you complete your tax savings before the March 31, 2024 deadline expires.
How much tax you will save under old tax regime
Let us see how much your tax liability will increase if you do not make tax-saving investments under Section 80C. Suppose your total income in the financial year is Rs 15 lakh and you are unable to make investments of Rs 1.5 lakh under section 80C in specified instruments such as Public Provident Fund, equity-linked savings scheme of mutual funds etc., then your tax liability will be Rs 2.73 lakh (under the old tax regime, inclusive of cess at 4%). If you invest Rs 1.5 lakh in tax-saving instrument as specified under section 80C, then your tax liability will be Rs 2,26,200 (inclusive of cess at 4%). An investment of Rs 1.5 lakh under Section 80C would save tax of Rs 46,800 (including cess).
Similarly, buying a health insurance policy can save tax up to Rs 31,200 under Section 80D. The more deductions and tax exemptions an individual can claim, the lesser will be the tax outgo for an individual in the old tax regime.
It is important to compare the income tax payable in the new tax regime as the income tax slabs have been revised in the new tax regime. If there is no business income, then one can choose the tax regime where income tax liability is lower.
If an individual opts for the new tax regime without claiming any eligible deductions mentioned above, then income tax liability will be Rs 1.56 lakh. The difference in the tax outgo is 1.17 lakh.
If an individual claims a standard deduction of Rs 50,000 from salary income and Section 80CCD (2) deduction for employer contribution to the employee’s NPS account, then the tax outgo will lower further in the new tax regime.
What you should do
Once you have opt for the old tax regime, it is important that you complete your tax savings for the current financial year by March 31, 2024. For Section 80C, there are various investments and expenditures eligible for deduction.
Some of the specified Section 80C investments can be done online as well. For example, you can invest in 5-year bank fixed deposits to save income tax. Similarly, if you are already investing in mutual funds, then you can invest in tax-saving ELSS as well.
If you are facing a shortfall of funds due to which you cannot make investments in tax-saving instruments on time, then there are certain expenditures that are eligible for deductions under Section 80C of the Income-tax Act. These include, children tuition fees, home loan principal repayment. Further, interest paid on the home loan also offer tax-saving benefit under Section 24.
March 31 is the last day of the financial year, and it falls on a Sunday this year. Hence, it is important to choose, make investments and get proof for Section 80C investments before March 31.