The New Year has started. In such a situation, if you follow some methods regarding tax saving from now on, you can save tax worth lakhs of rupees by the end of the financial year. The new financial year will start from April, that is, there is still 3 months left, during which taxpayers can review their tax payments and liabilities and think about tax saving tips. Also, it is important for taxpayers to think about their financial condition.
However, those people whose annual income is more than Rs 7 lakh should think more about ways to save tax. If their salary is less than Rs 7 lakh then they can eliminate the tax liability by opting for the new tax regime. But if the annual income is more than Rs 7 lakh then they can save tax worth lakhs of rupees by choosing the option of Old Tax Regime. Let us know which methods you should adopt to save tax?
Old vs New Tax Regime
Before moving towards tax saving option, it is important to understand your tax structure and also know where you will get more exemption? Under the old tax system, taxpayers had the ability to avail various types of deductions and exemptions in many categories. About 70 deductions and exemptions are offered under this system, which helps in reducing taxable income. Additionally, individuals can claim deduction up to Rs 1.5 lakh under Section 80C.
A new tax regime was introduced in the Union Budget 2020 offering concessional tax rates. Taxpayers opting for this new regime are not eligible to claim major deductions like HRA, LTA, Section 80C and others. In Budget 2023, the central government established the new tax regime as the default option. If a taxpayer does not explicitly choose between the old and new tax regime, his tax will be automatically calculated under the new regime.
old way of saving tax
Taxpayers have the option to invest in things like National Savings Certificate (NSC), ULIP (Unit-Linked Insurance Premium) and PPF (Public Provident Fund) to avail income tax exemption under Section 80C. The maximum limit of tax exemption is Rs 1.5 lakh.
How can you take advantage of tax saving?
Section 80C: This section allows individuals to claim an annual deduction of up to Rs 1.5 lakh for contributions made to designated pension schemes provided by life insurance companies.
Section 80CCD(1): Taxpayers can avail tax deduction on the amount deposited in their NPS account under this section. The maximum deduction for a financial year is Rs 1.5 lakh.
Section 80D: Taxpayers can claim deduction on premiums paid for medical insurance for self, spouse, parents and dependent children under Section 80D of the Income Tax Act, 1962. The maximum limit is Rs 25,000 for regular citizens and Rs 50,000 for senior citizens annually.
Section 80CCD (1B): This section allows additional deduction of up to Rs 50,000 for contributions made to NPS.
Investment under the new tax system
Under the new tax regime, the government has made some changes in recent years that will be applicable in tax filing for FY 2025. Now full tax exemption will be applicable on income up to Rs 7 lakh, whereas earlier this limit was Rs 5 lakh. This adjustment ensures that individuals with income up to Rs 7 lakh will not have to pay any tax under the new tax regime. Standard deduction of Rs 50,000 is also available in the new tax regime. Effective from financial year 2024-25, this deduction has been increased to Rs 75,000 for the new regime only.