Income Tax Filing 2024: How to reduce tax liability in this financial year, know details
How to Save Tax: The new financial year started in April. You have time to plan your tax bill and restructure your salary to cut tax expenses. Proper tax planning can help you save tax and maximize your take-home salary. The Income Tax Act allows deductions for investments, savings, and expenses in a financial year. When looking at your total salary, it may seem like you are earning a good amount. However, it is important to consider your take-home pay, which is the amount you receive after deductions such as tax. If you don't take steps to save taxes, you may find that your net pay is much lower than you anticipated. To ensure that you are maximizing your earnings, it is important to be active in looking for tax-saving options. By taking advantage of tax-saving strategies you can increase your take-home pay and ultimately improve your financial stability.
Understand tax brackets
Taxpayers have the option to choose between the old and new tax regimes for assessment year 2024-25. The new tax system offers potentially lower tax rates for different income categories. However, it also eliminates some deductions available under the old system. The old tax system is an age-old tax structure that has been in place for decades. Taxpayers can claim various deductions and exemptions under various sections of the Income Tax Act. There are around 70 deductions and exemptions available under this scheme which help in reducing your taxable income. It also allows a deduction of Rs 1.5 lakh under section 80C. A new tax regime with concessional tax rates was introduced in the Union Budget 2020. Taxpayers opting for the new tax regime cannot claim key deductions like HRA, LTA, Section 80C, and many others. The central government made it a default option in Budget 2023. If a taxpayer does not choose between the old and new tax regimes, their tax is automatically calculated under the new regime. Salaried individuals and business professionals are allowed to switch between the old and new tax regimes every year.
How to save tax
Most taxpayers prefer the old tax system. In the past, the Income Tax Department introduced several deductions from taxable income under Chapter VIA. Section 80C is the most famous and widely used deduction. But this is mostly for those who will choose or have already chosen the old tax regime. You can claim a deduction up to Rs 1.5 lakh for eligible investments under Section 80C. Under the old tax system, taxpayers can invest in the following schemes and opt for tax deductions.
Public Provident Fund (PPF)
Offers tax deduction under Section 80C of Income Tax (up to Rs 1.5 lakh) and tax-free interest, making it an attractive option for long-term savings and wealth creation.
Home loan benefits
Deduction for home loans is available on both principal (Section 80C) up to Rs 1.5 lakh and interest (Section 24) up to a maximum of Rs 2 lakh, which significantly reduces tax liability.
Health insurance premium
Premiums are eligible for deduction under section 80D (up to Rs 25,000 for individuals and Rs 50,000 for senior citizens) to promote health coverage and tax savings.
Retirement and charity
Deductions exist for contributions up to Rs 1.5 lakh per year to NPS (Section 80CCD), interest on electric vehicle loans (Section 80EEB), and charitable donations made to registered organizations (Section 80G).
Tax-free income and dividend tax rate
Interest earned on savings accounts is tax-free (up to Rs 10,000), with a higher limit (Rs 50,000) for senior citizens. Additionally, dividends received from stocks and mutual funds are subject to favorable surcharge rates.
Tax exemption
Exemptions are available under the old and new tax regimes. Under the old tax regime, individuals with taxable income up to Rs 5 lakh can claim tax exemption of up to Rs 12,500 under Section 87A. The new tax regime offers a potentially higher exemption of up to Rs 25,000 for individuals with income up to Rs 7 lakh.
By implementing these tax planning strategies, individuals can significantly reduce their tax burden and improve their financial bottom line. Adopting a proactive approach to tax planning is beneficial in saving tax.
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