Benjamin Franklin once remarked, “A penny saved is a penny earned,” highlighting the importance of tax planning as a crucial financial strategy. The Income Tax Act of India provides numerous deductions and exemptions for investments, savings, and spending within a fiscal year, allowing individuals to reduce their tax obligations and enhance savings. By understanding these provisions, one can effectively decrease their tax liabilities.

Investments and expenses are standard aspects of daily life that improve the quality of living but can stress financial resources. To mitigate this, the government offers frameworks for tax exemptions and deductions, applying directly to total income. This article delves into effective income tax saving strategies for both the old and new tax regimes for FY 2023-24.

Budget 2024 Updates

In the Budget for 2024-25, Finance Minister Nirmala Sitharaman introduced a new tax structure for FY 2024-25, while current FY 2023-24 tax slabs continue as previously set. Here are 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 with notable updates such as an increase in the Family Pension Deduction from ₹15,000 to ₹25,000 and a raise in the Employer’s Contribution to Pension Scheme limit from 10% to 14% of salary plus DA.

New Tax Regime Deductions and Exemptions

The new tax regime presents a simplified structure with lower tax slabs but fewer deductions, beneficial for those with minimal investments. Key deductions include:

• Section 80CCD(2): Employer's contribution to NPS, applicable to salaried employees, offering up to 14% for central government workers and 10% for others, with a combined threshold for PF, NPS, and Superannuation at ₹7,50,000.
• Section 80CCH(2): Contributions to the Agniveer Corpus Fund, offering deductions for both contributors and recipients under the Agnipath Scheme.
• Section 57(iia): Family Pension Income Deduction, allowing one-third of pension income or ₹15,000 (whichever is lower) to reduce taxable income.
• Section 24: Deduction for interest on home loans for let-out properties without an upper limit.
• Transport allowance: ₹3,200 per month exemption for commuting expenses, specific to physically challenged employees.

Exemptions Under Section 10

The new regime initially limited Section 10 exemptions but later reinstated some, including:

• Voluntary Retirement Scheme: Up to ₹5 lakh exemption.
• Gratuity: Full exemption for government employees; for private employees, based on the Payment of Gratuity Act.
• Leave Encashment: Up to ₹25 lakh exemption.

Old Tax Regime Deductions and Exemptions

Under the old regime, additional deductions and exemptions are provided, potentially reducing tax liabilities. Tax slabs include:

• 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%

Significant deductions include:

• Section 80C: Tax relief on home loan repayments up to ₹1.5 lakh for principal and ₹2 lakh for interest, with additional benefits for first-time homebuyers under Section 80EEA.
• Section 80D: Health Insurance Deductions up to ₹50,000 for senior citizens.
• Section 80C: Investments in government schemes like SCSS, SSY, NPS, with up to ₹1.5 lakh deduction.
• Section 80C: Life insurance premiums and Section 10(10D) exempts certain sum assured payments.
• Various investment options like PPF, NSC, NPS, ELSS with different returns and lock-in periods.
• Additional deductions beyond Section 80C include Home Loan Interest, Charitable Donations (Section 80G), Education Loan Interest (Section 80E), and employer contributions to NPS (Section 80CCD(2)).

Conclusion

Strategically maximizing income tax savings involves understanding and appropriately utilizing the available deductions and exemptions in either tax regime. For personalized strategies, consulting a financial advisor can be beneficial in aligning with one’s financial condition.