Best Ways to Save Income Tax for FY 2024-25
Managing income tax efficiently is a cornerstone of smart financial planning. By minimizing your tax liability, you can free up resources to invest in your future goals, whether it's building wealth, securing your family’s needs, or planning for retirement. As the financial year 2024-25 unfolds, it’s the perfect time to explore effective strategies to save on taxes and maximize your financial potential.
What is Income Tax?
Income tax is a direct tax levied by the government on an individual's income or earnings during a financial year. It serves as the government's primary revenue source, enabling it to fund public infrastructure, welfare programs, and various development initiatives. Every individual or entity earning above a certain threshold must pay income tax according to prescribed rates. What is an Income Tax Slab?
Income tax is calculated based on income slabs defined by the government. These slabs indicate different tax rates applicable for different income levels. For FY 2024-25, there are two tax regimes: - 1. Old Tax Regime: Includes deductions under various sections of the Income Tax Act.
- 2. New Tax Regime: Offers reduced tax rates without most deductions and exemptions.
| Income Slab (₹) | Tax Rate under New Regime | Tax Rate under Old Regime |
| Up to ₹2,50,000 | Nil | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% | 5% |
| ₹5,00,001 to ₹10,00,000 | 10% | 20% |
| Above ₹10,00,000 | 30% | 30% |
Budget 2024 Updates
The Union Budget for 2024 introduced key amendments impacting income taxpayers: - Increase the basic exemption limit under the new regime from ₹2,50,000 to ₹3,00,000.
- Enhanced deduction under Section 80C for specified investments.
- Higher standard deduction for salaried individuals and pensioners.
These changes emphasize making the new regime more attractive while encouraging savings. Income Tax Act for Tax Saving
The Income Tax Act 1961 offers numerous provisions to help taxpayers reduce their taxable income through deductions and exemptions. Key sections include: | Section | Purpose | Details | Maximum Deduction |
| Section 80C | Investments in tax-saving instruments | Deduction for investments in PPF, EPF, ULIPs, NPS, ELSS, and five-year tax-saving FDs. | Up to ₹1.5 lakh |
| Section 80D | Health insurance premiums | Deduction for premiums paid for self, spouse, and dependent children. Additional deduction for parents’ insurance. | ₹25,000 (self/family) + ₹25,000 (parents) (₹50,000 for senior citizens) |
| Section 80E | Interest on education loan | Deduction for interest paid on education loans for self, spouse, or children. No maximum limit. | No limit |
| Section 80G | Donations to charitable organizations | Deduction for donations to specified charities. Limited to 50% of the donated amount, up to 10% of total income. | Based on donations and limits |
| Section 80TTA | Interest on savings account | Deduction for interest earned on savings account deposits. | Up to ₹10,000 |
| Section 80EE | Interest on home loans for first-time buyers | A deduction for home loan interest was taken between April 1, 2019, and March 31, 2022. The house's value should not exceed ₹50 lakh. | Up to ₹50,000 |
| Section 80EEA | Additional interest on home loans for first-time buyers | Additional interest deduction on loans taken between April 1, 2019, and March 31, 2022. The value of the house should not exceed ₹45 lakh. | Up to ₹1.5 lakh |
Also read: 6 Ways to Save on Your Income Tax in 2024-25 What are the Best Ways to Save Tax Under Section 80C in 2024-25?
Section 80C of the Income Tax Act, 1961, provides deductions from taxable income for specified investments and expenses, with a maximum limit of ₹1.5 lakh per financial year. Below are some of the top options to save tax under this section: - 1. Unit Linked Insurance Plan (ULIPs):
- Offers both investment and insurance benefits.
- Premiums paid are deductible up to ₹1.5 lakh annually.
- 2. Equity-Linked Savings Scheme (ELSS):
- A mutual fund that invests in equities.
- Lock-in period: 3 years (shortest among 80C options).
- 3. Public Provident Fund (PPF):
- A long-term government savings scheme.
- Lock-in period: 15 years.
- Interest earned is tax-free.
- 4. National Savings Certificate (NSC):
- A fixed-income scheme offered by post offices.
- Lock-in period: 5 years.
- 5. Life Insurance Premium:
- Premiums paid for life insurance policies are deductible.
- 6. Employee Provident Fund (EPF):
- Employee contributions to EPF are eligible for deductions.
- 7. Sukanya Samriddhi Yojana (SSY):
- A savings scheme for the girl child’s education and marriage.
- Offers tax-free interest and maturity.
- 8. Senior Citizens Savings Scheme (SCSS):
- Designed for senior citizens to provide regular income.
- Provides tax-saving benefits.
- 9. Fixed Deposit (FD):
- Tax-saving FDs with a lock-in period of 5 years qualify under Section 80C.
- 10. Home Loan Principal Repayment:
- The principal portion of a home loan EMI is eligible for deduction.
- 11. Tuition Fees:
- Tuition fees paid for up to two children are eligible for deduction.
These instruments help reduce your tax liability and align with various financial goals, from long-term wealth creation to securing your family’s future. Also read: Income Tax Deductions List How to Plan Your Tax-Saving Investments for the Year?
The ideal time to begin planning your tax-saving investments is at the start of the financial year. Delaying this process often leads to rushed decisions in the last quarter, which might not align with your long-term financial goals. Starting early allows your investments to compound and contribute effectively to wealth creation. Tax savings should be considered an added benefit, not the primary objective. To plan your tax-saving efficiently: 1. Review Existing Tax-Saving Expenses: Identify expenses that already qualify for deductions, such as insurance premiums, children’s tuition fees, EPF contributions, and home loan repayments.
2. Evaluate Tax Regimes: Compare the old and new tax regimes to determine which are more beneficial. Online calculators like ClearTax can help you with your project and help you choose the best option.
3. Calculate Additional Investment Needs: Deduct your existing tax-saving expenses from the ₹1.5 lakh Section 80C limit to determine how much more you need to invest. If your expenses cover the limit, additional investments may not be necessary.
4. Select Investments Wisely: Based on your financial goals and risk tolerance, choose tax-saving instruments like ELSS funds, PPF, NPS, or fixed deposits. Ensure they align with your broader investment strategy.
5. Consider the Chosen Tax Regime: If you decide to opt for the new tax regime while filing your ITR, note that investments made under Section 80C won’t result in any tax savings. Opt for additional investments only if the old regime provides greater benefits.
6.Spread Investments Across the Year: Start investing in the first quarter of the financial year. Spacing your investments ensures you’re not financially burdened at the year-end and allows time to make well-informed decisions.
By following these steps, you can seamlessly integrate tax planning into your overall financial strategy, ensuring compliance and long-term wealth accumulation. Conclusion
Effective tax planning is a continuous process that combines knowledge, discipline, and financial foresight. By leveraging the Income Tax Act provisions and investing in instruments aligned with your goals, you can significantly reduce your FY 2024-25 tax liability. Make informed decisions and start your tax-saving journey today!