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 their tax liability by choosing the option of new tax regime.
Tax Saving: The new year has started. In such a situation, if some methods of tax saving are followed from now, then by the end of the financial year, you can save tax worth lakhs of rupees. The new financial year will start from April, which means there are still 3 months left, during which taxpayers can think about ways to save tax (Tax Saving Tips) by reviewing their tax payment and liability. 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 their tax liability by choosing the option of 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 should you adopt to save tax?
Old vs New Tax Regime
Before moving towards the tax saving option, it is important to understand your tax structure and also know where you will get more exemptions? Under the old tax system, taxpayers have the ability to avail various types of deductions and exemptions in many categories. Around 70 deductions and exemptions are offered under this system, which helps in reducing the taxable income. Additionally, individuals can claim a deduction of up to Rs 1.5 lakh under Section 80C.
The 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 highest limit of tax exemption is Rs 1.5 lakh.
How can you avail tax saving benefits
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 offered 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 per annum for regular citizens and Rs 50,000 per annum for senior citizens.
Section 80CCD (1B): This section allows an additional deduction of up to Rs 50,000 for contributions made to NPS.
Investments under the new tax regime
Under the new tax regime, the government has made some changes in recent years which will be applicable in tax filing for FY 2025. Now full tax exemption will apply to income up to Rs 7 lakh, while 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. At the same time, standard deduction of Rs 50,000 is also available in the new tax system. Effective from the financial year 2024-25, this deduction has been increased to Rs 75,000 only for the new system.
