Tax Saving: How to Reduce Tax Liability and Save Lakhs

Taxpayers can significantly reduce their tax burden by utilizing tax-saving provisions effectively. Here's a guide to help individuals understand the best strategies under the Old Tax Regime and the New Tax Regime for the financial year 2024-25.

Old vs. New Tax Regime

Old Tax Regime:

• Offers over 70 deductions and exemptions.
• Deductions include Section 80C (up to ₹1.5 lakh), HRA, LTA, and more.
• Ideal for those who can utilize these exemptions extensively.

New Tax Regime:

• Lower tax rates but limited deductions.
• Income up to ₹7 lakh is tax-free (earlier ₹5 lakh).
• Standard deduction increased to ₹75,000 (from ₹50,000) for FY 2024-25.
• Default option unless the taxpayer opts for the old regime.

Key Tax-Saving Sections

1. Section 80C:

   • Deduction up to ₹1.5 lakh.
   • Eligible investments:
     • National Savings Certificate (NSC)
     • Public Provident Fund (PPF)
     • Equity-Linked Savings Schemes (ELSS)
     • Life Insurance Premiums
     • Unit-Linked Insurance Plans (ULIPs)

2. Section 80CCD (1):

   • Deduction up to ₹1.5 lakh for contributions to the National Pension System (NPS).

3. Section 80CCD (1B):

   • Additional deduction of ₹50,000 for NPS contributions.

4. Section 80D:

   • Deduction for medical insurance premiums:
     • ₹25,000 for individuals under 60 years.
     • ₹50,000 for senior citizens.

Tax-Saving Tips for the Old Tax Regime

• Invest in tax-saving instruments like PPF, NSC, ELSS, and NPS.
• Pay premiums for health insurance and avail deductions under Section 80D.
• Plan charitable donations for additional deductions under Section 80G.

Investments and Benefits Under the New Tax Regime

• Tax Exemption Limit: Income up to ₹7 lakh is tax-free.
• Standard Deduction: ₹75,000 (for FY 2024-25).
• Reduced Tax Slabs: Concessional rates compared to the old system.
• Flexibility: No mandatory investments for tax savings.

Choosing the Right Tax Regime

Criteria	Old Tax Regime	New Tax Regime
Income	Above ₹7 lakh with exemptions available	Up to ₹7 lakh
Deductions	Extensive (e.g., Section 80C, 80D)	Limited
Flexibility	Investments required for savings	No investment mandate
Tax Rates	Higher	Lower

Conclusion

Taxpayers with annual incomes below ₹7 lakh may find the New Tax Regime more advantageous due to the increased tax-free limit and standard deduction. However, individuals earning more than ₹7 lakh should evaluate their ability to claim deductions under the Old Tax Regime to maximize savings.

Proactive tax planning can save lakhs of rupees. Start early to make informed decisions and take full advantage of available tax-saving options.