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Tax planning is considered one of the effective ways that will help you save on taxes while increasing your income. The income Tax act offers the taxpayers to deduct a variety of investments, savings and expenditures made within a single fiscal year. 

 

In order to live a comfortable lifestyle, we invest in numerous things that improve the quality of living but also cause financial hardship.  So to reduce this burden, the government provides income tax exemptions for direct taxes payable on your whole income. Here, we will discuss several options for saving income taxes under the old and new tax systems. 

 

Taking Advantage Of The New Tax Regime’s Deductions And Exemptions

 

Under the new framework, taxpayers can only claim a certain amount of tax deductions. As a result, if you are someone who has little investment, the new tax structure may be a perfect choice. Despite this, the tax slab rates are lower than before. 

 Here is the Tax slabs that falls right under the new tax structure: 

 

Income Tax SlabIncome Tax Rates for 2023-24 as per the new framework
Rs 3,00,000No tax 
Rs 3,00,000 – Rs 6,00,0005%
Rs 6,00,000 – Rs 9,00,00010%
Rs 9,00,000 – Rs 12,00,00015%
Rs 12,00,000 – Rs 15,00,00020%
Rs 15,00,000 and beyond30%

 

Involvement of employers in the national pension system

 

In accordance with section 80CCD(2), employers are entitled to a deduction for payments to NPS. This benefit is exclusive to salaried employees, not self-employed persons. An employer can make contributions to the NPS even if they have already funded the PPF and EPF funds. An employer’s contribution may be equal to or greater than an employee’s contribution. 

 

For the people working under central government, they can claim a deduction of up to 14% of their basic salary plus Dearness Allowance (DA) towards their NPS contribution. The amount contributed by the employer towards the NPS will be deducted from the employee’s payslip and deposited directly into their NPS account. However, there is an overall limitation  of Rupees 7 lakh 50 thousand  on the combined employer’s contribution towards the Provident Fund (PF), NPS, and Superannuation funds.

 

Deduction for Contributions to Agniveer Corpus Fund

The Income Tax Act allows for a deduction under Section 80CCH(2) for the combined contributions made by individuals enrolled in the Agnipath Scheme and the Central Government to the Agniveer Corpus Fund. This fund is a corpus established to provide benefits to the Agniveers upon completion of their tenure under the Agnipath Scheme.

The deduction is applicable to the total amount deposited by the Agniveer as well as the matching contribution made by the government into the Agniveer Corpus Fund during the period of engagement under the Agnipath Scheme. Additionally, any income received by the Agniveer or their nominees from this corpus fund is also exempt from taxation.

During their tenure, the Agniveers are entitled to various benefits such as ration allowance, compensation for risks and hardships, travel allowances, and provisions for death and disability. These benefits are provided to them in addition to the contributions made towards the Agniveer Corpus Fund.

This deduction under Section 80CCH(2) is available to individuals serving under the Agnipath Scheme, irrespective of whether they are part of the regular cadre or the territorial army after completing their initial tour of duty.

Family Pension Deduction

In the unfortunate event of an employee’s demise, their family is entitled to receive financial support, known as family pension, from the employer. This pension serves as a means to provide financial assistance to the deceased employee’s dependents.

Under Section 57(iia) of the Income Tax Act, a deduction is permissible on the family pension income received. The amount eligible for deduction is the lower of the following two values:

  1. One-third (⅓) of the total family pension income received during the financial year, or
  2. A maximum limit of Rs. 15 thousand

This deduction is designed to provide tax relief to the family members receiving the pension, thereby reducing their taxable income and overall tax liability. It is crucial to note that the deduction is limited to the specified amount or one-third of the family pension income, whichever is lower, ensuring a reasonable tax benefit while adhering to the prescribed guidelines.

Home Loan Interest Deduction: Self-Occupied vs. Let-Out Property

The new tax regime introduces a significant change in the treatment of home loan interest deductions. For self-occupied properties, the interest paid on home loans is no longer eligible for deduction under Section 24. However, for properties that are rented out or let-out, the interest paid on home loans can be claimed as a deduction without any upper cap or limit.

This change in the tax regime aims to rationalize the tax benefits associated with housing loans and promote the rental housing market by providing a more favorable tax treatment for let-out properties.

Understanding Transport Allowance and Conveyance Allowance

Transport Allowance: Transport allowance is a financial benefit provided by employers to employees to compensate for the expenses incurred while commuting between their residence and workplace. From the financial year 2018-19 onwards, a transport allowance exemption of up to three thousand two hundred  per month is allowed, but this exemption is limited to physically challenged employees who commute from their residence to their place of duty.

Conveyance Allowance: Conveyance allowance, on the other hand, is granted to employees to cover the expenses incurred during the performance of their official duties. In contrast to transport allowances, conveyance allowances are only tax-free up to the extent of the employee’s actual expenditures.

In summary, transport allowance is intended to cover commuting costs between home and work, with a specific exemption for physically challenged employees, while conveyance allowance is meant to reimburse expenses incurred during the execution of official duties, with the exemption limited to the actual expenses incurred.

Home Loan Tax Benefits: Unlock Savings with Wise Investment

The Indian government has introduced various initiatives, such as the Pradhan Mantri Awas Yojana (PMAY) and Delhi Development Authority (DDA) Housing Scheme, to make housing more affordable and accessible. Additionally, the Income Tax Act provides tax benefits under Sections 80C and 24(b) to reduce the financial burden associated with home loans.

Under Section 80C, individuals can claim a deduction of up to Rs. 1.5 lakh on the principal amount repaid towards their home loan. This deduction applies to the entire annual income spent on repaying the principal borrowed for the purchase or construction of a residential property.

Furthermore, Section 24(b) allows for a tax exemption on the interest portion of a home loan up to Rs. 2 lakh per year. This benefit is applicable for both self-occupied and rented properties.

If you decide to rent out the newly purchased property, the entire interest component paid on the home loan can be deducted from the rental income earned. However, it’s important to note that the set-off of losses against other heads of income will be limited to Rs. 2,00,000.

Additionally, Section 80EEA offers an additional deduction in your annual tax liability if you are a first-time homebuyer and meet the specified conditions outlined in the section.

By taking advantage of these tax benefits, homebuyers can significantly reduce their overall tax burden and make their dream of owning a home more financially viable.

 

Safeguard Your Health and Save on Taxes with Health Insurance

Investing in a health insurance policy not only provides financial protection against medical emergencies but also offers tax benefits under Section 80D of the Income Tax Act. By purchasing a health insurance plan, individuals can claim tax deductions on the premiums paid, thereby reducing their overall tax liability.

The amount eligible for deduction varies based on the age of the individuals covered under the policy. Specifically, for individuals below 60 years of age, the maximum deduction allowed is Rs. 25,000 per annum. This limit increases to Rs. 50,000 per annum for individuals aged 60 years and above.

Further, if the health insurance policy covers parents, an additional deduction of up to Rs. 25,000 (for parents under 60 years of age) or Rs. 50,000 (for parents over 60 years of age) may be claimed.

By taking advantage of these tax benefits under Section 80D, individuals can effectively reduce their taxable income while simultaneously securing comprehensive health coverage for themselves and their loved ones.

 

Deduction limits are as followed:

 

Particular Subject Amount 
Self and family (medical insurance)Up to 25 thousand ( in case of senior citizen  50 thousand rupees)
Pre Health Care5 thousand every month

 

Unlock Tax Benefits with Life Insurance Plans

The Income Tax Act provides various tax benefits for individuals who invest in life insurance plans. These benefits are outlined under Sections 80C, 10(10D), and 80CCC, among others.

  1. Section 80C Benefits:
    • Premiums paid towards life insurance plans are eligible for deduction under Section 80C, with a maximum limit of Rs. 1.5 lakh per annum.
    • For policies purchased after April 1, 2012, the deduction is allowed only if the premium amount does not exceed 10% of the sum assured.
    • For policies purchased before April 1, 2012, the deduction is allowed as long as the premium does not exceed 20% of the sum assured.
  2. Section 10(10D) Benefits:
    • The sum received at maturity or upon the death of the insured, whichever occurs first, is exempt from tax under Section 10(10D).
    • As per the Finance Act 2021, for Unit-Linked Insurance Plans (ULIPs), the exemption under Section 10(10D) is applicable only if the annual premium does not exceed Rs. 2.5 lakh.
    • As per the Finance Act 2023, for other insurance policies (non-ULIPs), the exemption under Section 10(10D) is applicable only if the annual premium does not exceed Rs. 5 lakh.
  3. Section 80CCC Benefits:
    • Contributions made towards pension plans or annuity plans through salary deductions are eligible for deduction under Section 80CCC, subject to a maximum limit of Rs. 1.5 lakh per annum.
  4. Section 80CCD(1) Benefits:
    • Contributions made to certain pension funds, as specified under Section 80CCD(1), are eligible for deduction, subject to a maximum limit of Rs. 1.5 lakh per annum.

By investing in life insurance plans and utilizing these tax benefits, individuals can not only secure their financial future but also reduce their tax liability, making it a prudent investment decision.

Investment Options Under Section 80C

Section 80C of the Income Tax Act provides a comprehensive list of investment options that individuals and Hindu Undivided Families (HUFs) in India can utilize to claim tax deductions. The most widely used avenues under this section allow taxpayers to reduce their taxable income by up to Rs. 1.5 lakh in a financial year. The eligible investments and expenses covered under Section 80C include contributions to various provident funds, such as the Employees’ Provident Fund (EPF) and Public Provident Fund (PPF), premiums paid for life insurance policies, principal repayments on home loans, investments in equity-linked saving schemes (ELSS), and contributions to specific government-backed savings schemes like the National Savings Certificate (NSC). By strategically allocating their investments across these options, taxpayers can optimize their tax savings while building a diversified investment portfolio.

 

InvestmentReturn percentage Period
5 year bank FD6-7%5 years or 1825 days
Public Provident Fund7-8%15 years or 5475 days
National Savings Certificate7-8%5 years or 1825 days
National Pension System 12-14%Till retirement
ELSS Funds15-18%3 years or 1095 days
Sukanya Samridhi YojanaDepends on the plan chosen Nill
Senior Citizen Scheme8.20%5 years or 1825 days
United Linked Insurance Plan8.20%5 years or 1825 days

 

Maximizing Tax Savings: Exploring Options Beyond Section 80C

While Section 80C provides a range of deductions, the Indian Income Tax Act offers several other avenues to help you reduce your tax liability. Here are some additional tax-saving options to consider:

  1. Home Loan Interest Deduction: You can claim a deduction of up to Rs. 2 lakh on the interest paid on your home loan under Section 24. Additionally, Sections 80EE and 80EEA allow you to claim a further deduction of up to Rs. 50,000 on home loan interest, subject to certain conditions, over and above the Section 24 limit.
  2. Charitable Contributions: Section 80G provides a deduction for charitable contributions made to eligible institutions or funds.
  3. Education Loan Interest:There is a deduction available for interest on education loans under Section 80E.
  4. National Pension System (NPS): Employer contributions to the NPS qualify for a deduction under Section 80CCD(2), with an overall threshold of Rs. 7,50,000 (including employer contributions to the Provident Fund). Moreover, individual contributions to the NPS are eligible for a deduction under Section 80CCD(1B), with a limit of Rs. 50,000 per year.
  5. Rent Deduction: Section 80GG provides a deduction of up to Rs. 60,000 per annum for non-salaried individuals who pay rent for their accommodation.
  6. Interest Income Deduction: Section 80TTA offers a deduction of up to Rs. 10,000 on savings bank interest for individuals below 60 years of age. For senior citizens, Section 80TTB provides a deduction of up to Rs. 50,000 on all interest incomes.

By taking advantage of these deductions, in addition to those available under Section 80C, you can maximize your tax savings and effectively manage your overall tax liability. It is advisable to consult with a qualified tax professional to ensure you are fully utilizing all applicable deductions based on your individual circumstances.

Strategize Your Tax-Saving Investments Early for Optimal Benefits

 

The beginning of the financial year presents an opportune time to meticulously plan your tax-saving investments. Rather than hastily making decisions in the final quarter, a proactive approach can yield compounded returns and aid in achieving long-term goals. Remember, tax savings should be a welcomed advantage, not the sole driving force.

 

Here are some pointers to guide your tax-saving strategy for the year:

 

  1. Assess Existing Tax-Saving Expenses: Evaluate expenses that already contribute to tax savings, such as insurance premiums, children’s tuition fees, Employees’ Provident Fund (EPF) contributions, and home loan repayments.

 

  1. Determine the Optimal Tax Regime: Utilize a tax calculator to assess whether the new tax regime or the old tax regime would be more advantageous for your circumstances.

 

  1. Calculate the Investment Requirement: Subtract your existing tax-saving expenses from the annual deduction limit of Rs. 1.5 lakh to determine the remaining amount you need to invest. You need not invest the entire amount if your expenses already cover the limit.

 

  1. Choose Investments Aligned with Goals and Risk Profile: Select tax-saving investments that complement your financial goals and risk tolerance. Equity Linked Saving Schemes (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and fixed deposits are among the popular options.

 

  1. Proceed with Investments if Old Tax Regime is Beneficial: If the old tax regime is more advantageous based on your current and projected deductions, proceed with your planned investments. However, if you opt for the new tax regime while filing your Income Tax Return (ITR), the investments you have made will not result in any tax savings.

 

It is advisable to initiate your investments during the first quarter of the financial year. This approach allows you to spread your investments throughout the year, avoiding a financial burden at the end and enabling well-informed investment decisions.

 

Frequently Asked Questions By Salaried Employees

 

How does the income tax system work in our country?

From the beginning, income tax is a significant source of revenue for the Indian government, allowing it to develop and maintain public infrastructure and facilities that benefit the entire nation. While paying income taxes may not be a preferred choice for most of us, it is a civic responsibility that contributes to the overall well-being of society. As responsible citizens of India and consumers of public resources,it is our duty to contribute through the payment of income tax.

Nowadays, filing income tax returns promptly and accurately is not only a legal obligation but also a means of making sure that our tax contributions are properly accounted for and utilised effectively. By fulfilling this responsibility, we support the government’s efforts to fund essential services, infrastructure projects, and social welfare programs that enhance the quality of life for all citizens.

However, it is important to recognise that the payment of income tax is not merely a financial burden but a collective investment in the nation’s ultimate progress and development. Through our tax contributions, we play a vital role in shaping a better future for ourselves and future generations, fostering economic growth, and promoting utmost social equity.

What do you mean by 80C deduction under chapter VI (SIX) Section – A?

Under Chapter VI-A of the Income Tax Act, Section 80C provides for deductions from an individual’s taxable income based on specific investments or eligible expenses incurred during the financial year. The purpose of this tax deduction is to encourage taxpayers to make prudent investments and promote their savings, ultimately contributing to the overall economic growth of our country.

The 80C deduction allows taxpayers to claim a deduction up to a maximum limit, which is currently ₹1.5 lakh (for the financial year 2023-24), from their total taxable income. This deduction can be claimed for investments made in various instruments such as the Public Provident Fund (PPF), Employee Provident Fund (EPF), life insurance premiums, equity-linked savings schemes (ELSS), principal repayment of home loans, stamp duty and registration charges for property purchases, contributions to the Sukanya Samriddhi Yojana (SSY), investments in National Savings Certificates (NSC), Senior Citizens’ Savings Scheme (SCSS), Unit-Linked Insurance Plans (ULIPs), tax-saving fixed deposits with a lock-in period of five years, and infrastructure bonds, among others.

 

What are other ways to save tax than section 80C?

The Indian Income Tax Act offers various provisions beyond Section 80C that allow taxpayers to claim deductions and reduce their taxable income. Here are some of the key deductions available:

  1. Section 80D: This section permits deductions for the payment of medical insurance premiums for self, spouse, and dependent parents, subject to specified limits.
  2. Section 80EE: First-time home buyers can claim a deduction on the interest paid on home loans, promoting the goal of affordable housing.
  3. Section 24: Taxpayers can claim a deduction of up to ₹2 lakh on the interest paid on housing loans, facilitating the acquisition of residential properties.
  4. Section 80EEB: To promote the adoption of environmentally friendly vehicles, a tax deduction is available for interest paid on the total amount of loans taken for the purchase of EV.
  5. Section 80G: Donations made to eligible charitable institutions and trusts can be claimed as deductions, promoting philanthropic activities.
  6. Section 80GG: For individuals who do not receive House Rent Allowance (HRA) as part of their salary, a deduction can be claimed for the rent paid, subject to certain conditions.
  7. Section 80TTA: A deduction of up to ₹10,000 can be claimed for interest earned on savings bank accounts, encouraging small savers.
  8. Sections 54 to 54F: These sections provide exemptions from capital gains tax if the proceeds from the sale of certain assets, such as residential properties or long-term capital assets, are reinvested in specified modes within defined time frames.

By taking advantage of these deductions, taxpayers can effectively reduce their taxable income and optimize their tax liabilities. However, it is crucial to carefully evaluate the eligibility criteria and comply with the necessary documentation requirements to claim these deductions accurately. 

 

How to save income tax on my salary? 

Lowering your taxable income can help you save more on the taxes you owe on your salary. The Income Tax Act provides several avenues for this, including deductions and exemptions. One way to reduce your taxable income is by claiming allowances such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA), in addition to the Standard Deduction.

Under Section 80C of the Act, you can claim deductions of up to Rs. 1.5 lakh for expenses like life insurance premiums, provident fund contributions, and investments in instruments like the Public Provident Fund (PPF) and Equity-Linked Savings Schemes (ELSS). Contributing to the National Pension System (NPS) can further reduce your taxable income by up to Rs. 50,000.

Other tax-saving opportunities exist for expenses related to health insurance premiums (Section 80D) and interest paid on education loans (Section 80E). By judiciously utilizing these provisions, you can effectively lower the tax you must pay on your salary.

 

Explain Section 80CCD

Section 80CCD is a provision under the Indian Income Tax Act that allows deductions for contributions made towards certain national pension schemes. Here’s a rewritten version of the provided content:

Section 80CCD facilitates tax deductions for contributions made to pension schemes notified by the Central Government of India. This deduction can be claimed by employees, employers, or individuals making voluntary contributions. The tax benefits under Section 80CCD are as follows:

  1. The overall deduction limit under Section 80C is ₹1.5 lakh (150,000 Indian Rupees) per financial year.
  2. Additionally, Section 80CCD(1b) allows an extra deduction of up to ₹50,000 for self-contributions made towards the National Pension System (NPS) or the Atal Pension Yojana (APY).

Therefore, an individual can claim a maximum deduction of ₹2 lakh (200,000 Indian Rupees) per financial year by combining the benefits of Section 80C and Section 80CCD(1b). This deduction is applicable for contributions made by the individual, their employer, or both, towards the eligible pension schemes.

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