The moment new financial year starts, every company begin sending Emails to their employees to submit Investment declaration in order to compute employee’s taxable salary income and give necessary deductions/benefits from their total income and reduce their tax burden.
Most of the time employees either miss to submit those declaration or are unaware on how to effectively utilise income tax provisions in respect of various deductions and exemptions. If you plan well then can definitely reduce your tax burden and increase take home salary.
We have compiled list of investments/options available within the Income tax law to reduce your tax burden:
Be aware of Tax slabs and Income Tax Regime (New vs Old)
Most of the people are not aware about the tax slabs which is crucial for planning their investments in tax saving options. Income Tax slabs may change and therefore stay updated with current tax slabs and plan your finance accordingly. Like recently for FY 2023-24 government has made changes in slab under New Tax Regime to Rs.300000 which was earlier Rs.2,50,000/- Tax Slabs under New Tax Regime and Old Tax Regime
So based on individuals income slab one can decide which regime is better for them to minimise their tax burden. If you are opting for new tax regime then there will be no deduction available under Section 80C , 80D and Housing Loan interest. So it is important to analyze the impact of switching to the new regime and assess whether it aligns with your tax-saving objectives.
For Tax slabs refer 2 Tax Rates.pdf (incometaxindia.gov.in)
Stay Informed Stay updated with Tax laws
Tax laws and regulations are constantly changing, so it is important to stay up-to-date with any changes that may affect your tax liability. You can do this by tracking budget announcements, circulars, and notifications issued by the tax authorities. You can also subscribe to reliable financial publications and online resources to stay informed about the latest developments in tax laws. By staying informed, you can make sure that you are taking advantage of all of the available tax breaks and deductions.
Optimize Salary Structure
Though generally it is not in your control to define salary structure but wherever possible discuss with your HR team and try to structure your salary in an efficient manner to avail maximum benefits from various deductions and exemptions. For example, shifting a portion of your salary towards tax-free allowances, such as House Rent Allowance (HRA) or Leave Travel Allowance (LTA), can help reduce your taxable income. Additionally, make use of tax-free reimbursements for expenses such as medical bills, telephone bills, and fuel reimbursements.
Investment under Section 80C
Investment under Section 80C is the most common strategy to invest in tax saving instruments like Public Provident Fund (PPF),National Saving Certificate(NSC), Tax Saving FDR, Employee Provident fund etc. These options are not just for tax savings but also to secure your savings and create long term wealth.
If you are risk taker and also wants to save tax then you can also look for options like investment in ULIP and ELSS- Equity Linked Saving schemes which works like Mutual Funds.
Children School Fee
With the ever increasing cost of education, it is a silver lining to save tax on children School fees (Tuition Fee). One should keep a complete record of school fee receipt and claim the available benefit under Section 80C.
Interest on Education Loan
Government is very much aware that how middle class people and even student take education loans for studies and pay hefty interest rates to banks. To support the salaries class there is tax deduction available under section 80E of Income Tax. Whole of the interest is available as deduction for a period of eight years or during the tenure of the loan, whichever is earlier. Ensure that you keep track of the interest paid and obtain the necessary certificate from the financial institution for claiming this deduction.
Leave Travel Allowance (LTA)
As the holidays comes we all tends to plan for travel to hills or beaches, but don’t forget to claim deduction of Leave Travel Expenses from your income. This exemption is available for the actual travel cost or the LTA received, whichever is lower. To avail of this benefit, ensure that you maintain proper documentation, such as travel tickets, boarding passes, and hotel bills, to support your LTA claim. If your salary structure doesn’t cover LTA then approach your HR to change your structure and give benefit of LTA.
Explore New Pension Scheme (NPS)
NPS is a deduction of Rs.50000 available over and above deduction available under Section 80C. National Pension Scheme offers a very lucrative retirement planning opportunity to tax payers. Contributions made towards NPS are eligible for deductions under Section 80CCD(1) of the Income Tax Act. Additionally, an additional deduction can be claimed under Section 80CCD(2) for contributions made by your employer.
Best thing about NPS is that you can choose how you want to invest, means you can create a mix of Debt, Equity and Government Security at your own and thereby can plan investment based on your risk appetite
Donations to NGO and Political Parties
We all tends to make various donations to NGO, Temple, Gurudwara, Churches but let me tell you that you can avail tax benefits on such donations, provided you get the proper tax-deductible receipt of donation from donee. Besides such donations you can also opt for donating to Political parties and get 100% benefit of such amount donated and reduce your tax burden.
Home Loan (Interest + Principal)
The Income Tax Act allows you to claim deductions on the interest paid on a housing loan under Section 24(b). Section 80EE provides additional deductions for first-time homebuyers. By leveraging these benefits, you can significantly reduce your taxable income and save on income tax. Not just interest but principal repayment is also available as deduction under section 80C. So there is double benefit on housing loan and which helps you reduce your cost of buying house.
Health Insurance U/s 80D
We all are afraid of medical expenses since it can have major impact on our finances. Health Insurance not only helps is funding your medical expenses but also reduced tax liability under section 80D. You can claim deduction upto Rs.75000 U/s 80D if you avail Medical policy in the name of your family and parents. Additionally, expenses incurred on preventive health check-ups can also be claimed as deductions.
Assess the Impact of Additional Deductions
Apart from the deductions under Section 80C,80D etc there are several other deductions available under the Income Tax Act. Be aware of those deductions like medical expenses for certain specified diseases (Section 80DDB), interest on savings accounts (Section 80TTA/80TTB), and deductions for persons with disabilities (Section 80U). Assess whether you are eligible for any additional deductions and plan your investments accordingly.
Don’t over invest for Tax Saving
There are capping on tax deductions and therefore you should not over spend on your tax saving options unless it is necessary like in case of Health Insurance Premium. Try investing as per the various limits and any excess can be invested in more profitable investment opportunity.
Most Important Consult with Professional
Seeking professional support in your tax and investment planning can be of great help, since they have in-depth knowledge of the law and various investment plans which can give you great value. They can help you identify additional tax-saving opportunities and ensure compliance with all relevant regulations.
In conclusion your tax saving exercise requires advance planning, finding write investment option and awareness of the latest law. Hope the above mentioned tools will help you in tax planning and managing your compliances. Remember to consult with a professional who can tailor these options based on your circumstances.
