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Trusted by 1L+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below
Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
Trusted by 3 Crore+ Indians
Want to Achieve any of the below Goals upto 80% faster?
Dream Home
Dream Wedding
Dream Car
Retirement
1st Crore
6 Effective Strategies to Optimize Income Tax Savings Under Both New and Old Tax Regimes for FY 2023-24
6 Effective Strategies to Optimize Income Tax Savings Under Both New and Old Tax Regimes for FY 2023-24
Benjamin Franklin famously said, “A penny saved is a penny earned.” Tax planning is a crucial aspect of financial management that can significantly enhance your savings by reducing your tax burden. The Income Tax Act of India offers a variety of deductions and exemptions for investments, savings, and expenditures incurred during a financial year. Understanding and leveraging these provisions can help you save substantial amounts on taxes.
In our day-to-day lives, we often make investments and expenditures that improve our quality of life but can also strain our finances. To alleviate this burden, the government has provided a framework for tax exemptions and deductions on direct taxes, which are levied on your total income. This article explores effective strategies to save on income tax under both the old and new tax regimes for the financial year 2023-24.
Budget 2024 Updates
In the recent Budget 2024-25, Finance Minister Nirmala Sitharaman outlined a new tax structure for the upcoming financial year 2024-25. However, for the current financial year 2023-24, the existing tax slabs and deductions remain unchanged. Here’s a snapshot of the revised tax slabs for FY 2024-25:
Income up to ₹3 lakh: No tax
Income from ₹3 lakh to ₹7 lakh: 5%
Income from ₹7 lakh to ₹10 lakh: 10%
Income from ₹10 lakh to ₹12 lakh: 15%
Income from ₹12 lakh to ₹15 lakh: 20%
Income above ₹15 lakh: 30%
For FY 2023-24, the standard deduction remains unchanged. However, some notable updates include:
Family Pension Deduction: Increased from ₹15,000 to ₹25,000.
Employer’s Contribution to Pension Scheme: Raised from 10% to 14% of salary plus DA.
Tax Saving Deductions and Exemptions Under the New Tax Regime
The new tax regime offers a simplified tax structure with lower tax slabs but limits the availability of tax deductions. It is particularly advantageous if you have minimal investments. Here are the key deductions available under the new tax regime:
Employer Contribution to NPS under Section 80CCD(2)
Section 80CCD(2) provides a deduction for contributions made by an employer to the National Pension Scheme (NPS). This benefit is applicable to salaried individuals, not the self-employed. An employer can contribute to NPS irrespective of contributions made to other funds like the Provident Fund (PF) or Employees' Provident Fund (EPF). For central government employees, the deduction can be up to 14% of the salary (Basic + DA), while for non-government employees, the cap is 10%. The total threshold for deductions including PF, NPS, and Superannuation is ₹7,50,000.
Agniveer Corpus Fund Contributions under Section 80CCH(2)
Contributions made to the Agniveer Corpus Fund by both the central government and individuals are eligible for deductions under Section 80CCH(2). Exemptions are available if the applicant or their nominees receive income under the Agnipath Scheme, which includes benefits like risk and hardship allowances, travel, death, and disability compensation. This deduction applies to both the old and new tax regimes.
Family Pension Income Deduction under Section 57(iia)
Family pension refers to the financial support provided to the family of a deceased employee. Under Section 57(iia), a deduction equal to one-third of the family pension income or ₹15,000 (whichever is lower) is allowed. This helps reduce the taxable income of the pensioners' family.
Interest on Home Loan for Let-Out Property under Section 24
The new tax regime disallows deductions for interest on home loans for self-occupied properties. However, interest on home loans for let-out properties is deductible without any upper limit. This can provide significant tax relief if you own rental properties.
Transport and Conveyance Allowances
Transport allowance is provided to employees to cover commuting expenses between their residence and workplace. From FY 2018-19 onwards, the exemption is ₹3,200 per month, applicable only to physically challenged employees. Conveyance allowance covers actual expenses incurred during office duties and is exempt up to the actual expenditure.
Exemptions Under Section 10
The new tax regime initially excluded most exemptions under Section 10. However, certain exemptions have been reinstated:
Voluntary Retirement Scheme: Exemption of up to ₹5 lakh.
Gratuity: Fully exempt for government employees. For private sector employees, the exemption depends on coverage under the Payment of Gratuity Act.
Leave Encashment: Maximum exemption increased to ₹25 lakh. Amount exceeding this is taxable.
Tax Saving Deductions and Exemptions Under the Old Tax Regime
The old tax regime provides more opportunities for deductions and exemptions, potentially resulting in a lower tax liability. Here are the tax slabs for the old tax regime:
Income from ₹2,50,000 to ₹5,00,000: 5%
Income from ₹5,00,000 to ₹10,00,000: 20%
Income above ₹10,00,000: 30%
The following deductions are available under the old tax regime:
Home Loan Tax Benefits under Section 80C
Various government schemes, such as the Pradhan Mantri Awas Yojana (PMAY) and Delhi Development Authority (DDA) Housing Scheme, aim to make housing affordable. Sections 80C and 24(b) offer tax relief on home loan repayments. Section 80C provides a deduction of up to ₹1.5 lakh on the principal repayment. Section 24(b) allows a deduction of up to ₹2 lakh on the interest component. If the home is rented out, the entire interest amount is deductible from rental income, though losses can only be set off up to ₹2 lakh. Section 80EEA offers an additional deduction for first-time homeowners.
Health Insurance Deductions under Section 80D
Section 80D allows deductions for premiums paid on health insurance. The deduction limits are as follows:
Medical Insurance for Self and Family: ₹25,000 (₹50,000 for senior citizens).
Medical Insurance for Parents: ₹25,000 (₹50,000 for senior citizens).
Preventive Health Checkups: ₹5,000 per year.
Medical Expenses for Senior Citizens without Insurance: ₹50,000.
Government Schemes Investment under Section 80C
Investments in government schemes can provide high returns and tax exemptions. Investments up to ₹1.5 lakh under Section 80C include:
Senior Citizen Savings Scheme (SCSS)
Sukanya Samriddhi Yojana (SSY)
National Pension Scheme (NPS)
Public Provident Fund (PPF)
Life Insurance Plans
Under Section 80C, premium payments for life insurance policies are deductible. Section 10(10D) exempts the sum received at maturity or early death, provided premiums are less than 10% of the sum assured if purchased after April 1, 2012. For policies bought before this date, the premium should not exceed 20% of the sum assured. The Finance Act 2021 and 2023 adjust these exemptions for ULIPs and other policies respectively. Section 80CCC also provides tax exemptions on pension funds.
Investment Options under Section 80C
Section 80C offers a range of investment options with varying returns and lock-in periods:
5-Year Bank Fixed Deposit: 6% to 7% annual return.
Public Provident Fund (PPF): 7% to 8% annual return with a 15-year lock-in.
National Savings Certificate (NSC): 7% to 8% annual return with a 5-year lock-in.
National Pension System (NPS): 12% to 14% annual return until retirement.
Equity Linked Savings Scheme (ELSS): 15% to 18% annual return with a 3-year lock-in.
Unit Linked Insurance Plan (ULIP): Returns vary with the chosen plan.
Sukanya Samriddhi Yojana (SSY): 8.20% return.
Other Tax Saving Deductions Beyond Section 80C
Additional deductions available include:
Home Loan Interest: Up to ₹2 lakh under Section 24. Section 80EE and Section 80EEA allow additional deductions of ₹50,000 on home loan interest.
Charitable Donations: Deductions for donations to qualifying institutions under Section 80G.
Education Loan Interest: Deductible under Section 80E.
Employer Contributions to NPS: Deductible under Section 80CCD(2).
Final Thoughts
Maximizing your income tax savings requires careful planning and strategic use of the available deductions and exemptions. Whether you choose the new or old tax regime, understanding the nuances and making informed decisions can significantly impact your tax liabilities. For personalized advice, consulting a tax professional or financial advisor can help tailor strategies to your specific financial situation.
Benjamin Franklin famously said, “A penny saved is a penny earned.” Tax planning is a crucial aspect of financial management that can significantly enhance your savings by reducing your tax burden. The Income Tax Act of India offers a variety of deductions and exemptions for investments, savings, and expenditures incurred during a financial year. Understanding and leveraging these provisions can help you save substantial amounts on taxes.
In our day-to-day lives, we often make investments and expenditures that improve our quality of life but can also strain our finances. To alleviate this burden, the government has provided a framework for tax exemptions and deductions on direct taxes, which are levied on your total income. This article explores effective strategies to save on income tax under both the old and new tax regimes for the financial year 2023-24.
Budget 2024 Updates
In the recent Budget 2024-25, Finance Minister Nirmala Sitharaman outlined a new tax structure for the upcoming financial year 2024-25. However, for the current financial year 2023-24, the existing tax slabs and deductions remain unchanged. Here’s a snapshot of the revised tax slabs for FY 2024-25:
Income up to ₹3 lakh: No tax
Income from ₹3 lakh to ₹7 lakh: 5%
Income from ₹7 lakh to ₹10 lakh: 10%
Income from ₹10 lakh to ₹12 lakh: 15%
Income from ₹12 lakh to ₹15 lakh: 20%
Income above ₹15 lakh: 30%
For FY 2023-24, the standard deduction remains unchanged. However, some notable updates include:
Family Pension Deduction: Increased from ₹15,000 to ₹25,000.
Employer’s Contribution to Pension Scheme: Raised from 10% to 14% of salary plus DA.
Tax Saving Deductions and Exemptions Under the New Tax Regime
The new tax regime offers a simplified tax structure with lower tax slabs but limits the availability of tax deductions. It is particularly advantageous if you have minimal investments. Here are the key deductions available under the new tax regime:
Employer Contribution to NPS under Section 80CCD(2)
Section 80CCD(2) provides a deduction for contributions made by an employer to the National Pension Scheme (NPS). This benefit is applicable to salaried individuals, not the self-employed. An employer can contribute to NPS irrespective of contributions made to other funds like the Provident Fund (PF) or Employees' Provident Fund (EPF). For central government employees, the deduction can be up to 14% of the salary (Basic + DA), while for non-government employees, the cap is 10%. The total threshold for deductions including PF, NPS, and Superannuation is ₹7,50,000.
Agniveer Corpus Fund Contributions under Section 80CCH(2)
Contributions made to the Agniveer Corpus Fund by both the central government and individuals are eligible for deductions under Section 80CCH(2). Exemptions are available if the applicant or their nominees receive income under the Agnipath Scheme, which includes benefits like risk and hardship allowances, travel, death, and disability compensation. This deduction applies to both the old and new tax regimes.
Family Pension Income Deduction under Section 57(iia)
Family pension refers to the financial support provided to the family of a deceased employee. Under Section 57(iia), a deduction equal to one-third of the family pension income or ₹15,000 (whichever is lower) is allowed. This helps reduce the taxable income of the pensioners' family.
Interest on Home Loan for Let-Out Property under Section 24
The new tax regime disallows deductions for interest on home loans for self-occupied properties. However, interest on home loans for let-out properties is deductible without any upper limit. This can provide significant tax relief if you own rental properties.
Transport and Conveyance Allowances
Transport allowance is provided to employees to cover commuting expenses between their residence and workplace. From FY 2018-19 onwards, the exemption is ₹3,200 per month, applicable only to physically challenged employees. Conveyance allowance covers actual expenses incurred during office duties and is exempt up to the actual expenditure.
Exemptions Under Section 10
The new tax regime initially excluded most exemptions under Section 10. However, certain exemptions have been reinstated:
Voluntary Retirement Scheme: Exemption of up to ₹5 lakh.
Gratuity: Fully exempt for government employees. For private sector employees, the exemption depends on coverage under the Payment of Gratuity Act.
Leave Encashment: Maximum exemption increased to ₹25 lakh. Amount exceeding this is taxable.
Tax Saving Deductions and Exemptions Under the Old Tax Regime
The old tax regime provides more opportunities for deductions and exemptions, potentially resulting in a lower tax liability. Here are the tax slabs for the old tax regime:
Income from ₹2,50,000 to ₹5,00,000: 5%
Income from ₹5,00,000 to ₹10,00,000: 20%
Income above ₹10,00,000: 30%
The following deductions are available under the old tax regime:
Home Loan Tax Benefits under Section 80C
Various government schemes, such as the Pradhan Mantri Awas Yojana (PMAY) and Delhi Development Authority (DDA) Housing Scheme, aim to make housing affordable. Sections 80C and 24(b) offer tax relief on home loan repayments. Section 80C provides a deduction of up to ₹1.5 lakh on the principal repayment. Section 24(b) allows a deduction of up to ₹2 lakh on the interest component. If the home is rented out, the entire interest amount is deductible from rental income, though losses can only be set off up to ₹2 lakh. Section 80EEA offers an additional deduction for first-time homeowners.
Health Insurance Deductions under Section 80D
Section 80D allows deductions for premiums paid on health insurance. The deduction limits are as follows:
Medical Insurance for Self and Family: ₹25,000 (₹50,000 for senior citizens).
Medical Insurance for Parents: ₹25,000 (₹50,000 for senior citizens).
Preventive Health Checkups: ₹5,000 per year.
Medical Expenses for Senior Citizens without Insurance: ₹50,000.
Government Schemes Investment under Section 80C
Investments in government schemes can provide high returns and tax exemptions. Investments up to ₹1.5 lakh under Section 80C include:
Senior Citizen Savings Scheme (SCSS)
Sukanya Samriddhi Yojana (SSY)
National Pension Scheme (NPS)
Public Provident Fund (PPF)
Life Insurance Plans
Under Section 80C, premium payments for life insurance policies are deductible. Section 10(10D) exempts the sum received at maturity or early death, provided premiums are less than 10% of the sum assured if purchased after April 1, 2012. For policies bought before this date, the premium should not exceed 20% of the sum assured. The Finance Act 2021 and 2023 adjust these exemptions for ULIPs and other policies respectively. Section 80CCC also provides tax exemptions on pension funds.
Investment Options under Section 80C
Section 80C offers a range of investment options with varying returns and lock-in periods:
5-Year Bank Fixed Deposit: 6% to 7% annual return.
Public Provident Fund (PPF): 7% to 8% annual return with a 15-year lock-in.
National Savings Certificate (NSC): 7% to 8% annual return with a 5-year lock-in.
National Pension System (NPS): 12% to 14% annual return until retirement.
Equity Linked Savings Scheme (ELSS): 15% to 18% annual return with a 3-year lock-in.
Unit Linked Insurance Plan (ULIP): Returns vary with the chosen plan.
Sukanya Samriddhi Yojana (SSY): 8.20% return.
Other Tax Saving Deductions Beyond Section 80C
Additional deductions available include:
Home Loan Interest: Up to ₹2 lakh under Section 24. Section 80EE and Section 80EEA allow additional deductions of ₹50,000 on home loan interest.
Charitable Donations: Deductions for donations to qualifying institutions under Section 80G.
Education Loan Interest: Deductible under Section 80E.
Employer Contributions to NPS: Deductible under Section 80CCD(2).
Final Thoughts
Maximizing your income tax savings requires careful planning and strategic use of the available deductions and exemptions. Whether you choose the new or old tax regime, understanding the nuances and making informed decisions can significantly impact your tax liabilities. For personalized advice, consulting a tax professional or financial advisor can help tailor strategies to your specific financial situation.
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