This is the time when you need to collect all your tax saving certificates and other relevant documents to file your Income Tax Return (ITR). For individual taxpayers who do not require a tax audit, the deadline for ITR filing for the fiscal year 2023-24 (2024-25) is July 31.
While preparing to file ITR, it is also advisable to plan a financial strategy to maximize tax savings as the new financial year 2024-25 has just begun. An effective tax saving strategy and financial roadmap can help you save significantly on your income tax expenses. For employees, there are many options other than PPF deduction that can help reduce their income tax burden.
If you earn more than 1 million rupees a year, the income tax treatment can be complicated. One of the steps to understanding this complexity is to consider both the old and new income tax regimes to effectively understand your tax liability.
Choose your old and new tax regime carefully
It is important to note that from financial year 2023-24, the new tax regime will be your default regime. If you do not opt for the old tax regime, the ITR will be filed under the new tax regime.
Although the new tax system provides a reduced tax rate, some deductions and exemptions that were available under the old tax system are not available. On the other hand, under the old tax system, the tax rate is higher, but there are many exemptions and deductions.
Therefore, if you have sufficient tax-saving investments, choosing the old tax regime may be the ideal option.
Certain exemptions eliminated in new regime
Therefore, under the previous regime, you would have paid 30% tax if your salary was ₹10 lakh or above, but under the new rule, you would only pay 20%.
Many exemptions and deductions do not apply under the new system, which increases taxable income.
These include exemptions for components such as House Rent Allowance (HRA), Holiday Travel Allowance (LTA), 80C and 80D. Therefore, taxpayers must carefully manage these changes to effectively implement their tax planning strategies.
Under the old income tax system, if his salary is 1 million rupees, his tax liability can be reduced to zero. Here’s how:
- Standard deduction: ₹50,000.
- Health insurance premium (under section 80D): Up to ₹25,000 for yourself, spouse and dependent children. ₹25,000 for parents (₹50,000 for those above 60 years).
- University Loans (under Section 80E): Interest is deductible for 8 years starting from the year of repayment for university education by you, your spouse, dependent children, or students under your care. will be done.
- Charitable contributions (under section 80G): 50% to 100% of eligible amount.
- Deduction options under Section 80C of up to ₹1,50,000 include life insurance premium, provident fund, national savings certificate, Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) , includes 5-year fixed deposits, etc.
- Medical expenses for disabled dependents (under section 80DD): For disabled dependents up to ₹75,000 if the disability is 40% and up to ₹1,25,000 if the disability is 80%.
- Home Loan Deduction: For principal amount (as per Section 80C), the allowable deduction is up to ₹1.5 million. For interest amount (as per section 24b), the allowable deduction is up to Rs.200,000. Under Section 80EE, first-time homebuyers are provided with a deduction of up to ₹50,000 on their home loan interest payments.
- Deduction under Section 80TTA: Interest paid on savings account is up to ₹10,000.
- LTA (Travel Allowance) Deduction: ₹40,000.
- HRA (House Rent Allowance) Deduction: ₹1,50,000.
- Deduction on Refund (if applicable): ₹24,000.
By making the most of these deductions, you can also reduce your taxable income under the old income tax regime to zero, thereby maximising your savings.
