Now that we are in the middle of the fiscal year 2023-24, it is time to plan your taxes so that you are not stuck in last-minute tax concerns. Every salaried person’s financial life includes paying income tax, so finding ways to reduce it might help you keep more of your hard-earned money.
Top 15 tips to save your Income Tax on your Salary for FY2023-24 would be:
Use a good Income Tax Calculator
Firstly, checking your income tax liability before jumping the gun and doing your calculations is a great idea. It is best to use a tax calculator to get the exact calculations. It considers several financial criteria to generate a reliable projection of how much tax one may owe the government.
This tool considers your salary, deductions, exemptions, and other vital data to provide you with a comprehensive view of your possible tax liability. Utilising an income tax calculator that is current with tax rules and rates will result in the most accurate calculation.
Don’t forget to invest in Provident Funds
Employee Provident Fund (EPF) and Public Provident Fund (PPF) contributions are common ways to save income tax. EPF is a retirement savings programme that the government of India requires all salaried workers to participate in. A part of each employee’s salary is paid into the EPF account by the company and the employee, where the government determines the interest every year. Some organisations also provide an option of a Voluntary Provident Fund (VPF) wherein you can contribute more than your EPF, but the company won’t pay an equivalent amount. The rate of interest for EPF and VPF is 8.15% per annum.
PPF is a long-term savings programme that the government makes available to everyone. Contributions to these funds are deductible under the Income Tax Act 1961 under the 80C section. You are entitled to a deduction of up to 1.5 lakh every year. The interest is declared every quarter, and as of now, it is 7.10% per annum.
Invest in the National Pension System (NPS)
Investing in NPS helps you save for retirement and provides tax benefits. Contributions to the NPS are deductible under Section 80CCD(1B) up to Rs. 50,000 in excess of the Section 80C maximum of 1.5 lakh.
NPS allows you to build a long-term retirement portfolio with exposure to equity. You must choose Tier 1 or Tier 2, which works best for you.
Claim House Rent Allowance (HRA)
If you live in a rented house, ensure that you claim HRA exemption. The HRA exemption amount is determined based on your actual HRA received, rent paid, and salary. Use an income tax calculator to calculate the maximum HRA exemption you can claim.
Opt for a Home Loan
Taking a home loan can be a smart tax-saving move. Under Section 24, the interest on a home loan is deductible up to ₹2 lakh per annum, while the principal repayment qualifies for a deduction under Section 80C upto ₹1.5 lakhs.
Also, because a home loan is secured, the interest rate is usually much lower than the other interest rates in the market.
Utilize the Standard Deduction
For salaried individuals, there’s a standard deduction of ₹50,000 available under Section 16 of the Income Tax Act. This reduces your taxable income directly.
Invest in Equity-Linked Savings Schemes (ELSS)
Equity-linked savings scheme (ELSS) is the only type of mutual fund that qualifies for an income tax deduction under section 80C. It is suitable for both potential wealth-building and tax savings.
Purchase Health Insurance
Purchasing health insurance not only protects your health but also minimises your tax obligation. Section 80D allows you to deduct premiums paid for health insurance coverage for yourself, your spouse, your children, and your parents.
The maximum deduction amount is ₹25,000 for self, spouse, and dependent children and an additional amount of ₹25,000 for dependent parents. However, if your parents are more than 60 years of age, the limit is ₹50,000.
Claim Deductions on Interest Income
Savings account interest, fixed deposit interest, and recurring deposit interest are taxable. However, the interest earned from savings accounts can be deducted under Section 80TTA up to a maximum of ₹10,000. For senior citizens, the limit is ₹50,000 under section 80TTB for interest earned in savings accounts and fixed deposits.
Donations to Charitable Organisations
You can take advantage of Section 80G deductions for gifts made to accredited charity institutions if you’re motivated to support charitable causes. Depending on the type of charity institution and the donation amount, this section allows deductions of 50% or 100% of the donation.
Utilise the Leave Travel Allowance (LTA)
Employers frequently incorporate LTA in their remuneration packages. You can claim tax deductions on LTA for any travel expenses incurred while on leave within India. Please keep thorough records of your travel expenses. Government limitations set limits on LTA amounts. Keeping track of these restrictions is essential, as does submitting your LTA claim within the deadline.
House Rent Income
Consider the advantages of balancing the interest paid on the house loan against the rental income under Section 24 if you own multiple properties and earn rental income from one. Because interest on mortgage loans is tax deductible, doing this could result in significant tax savings.
Invest in National Savings Certificates (NSC)
The Indian government provides NSCs as a fixed-income investment option with low risk. Section 80C allows for the deduction of interest earned on NSCs.
Education Loan Interest Deduction
Deducting the interest paid on an education loan taken by you or your children under Section 80E is possible. Under Section 80E, you may deduct the interest paid on an education loan you or your children have taken out. The assesse may deduct up to Rs. 2 lakh in a financial year. Only the interest paid on the loan is deductible, not the principal.
Use Tax-Saving Fixed Deposits
Many banks provide five-year lock-in fixed deposits with tax advantages. The interest on these deposits may be deducted under Section 80C. These deposits are risk-free and offer a safe way to keep cash on hand for the future. The interest compounded annually on the deposits may be saved or invested. Use an income tax calculator if your savings are fixed-rate.
Thus, you can save income tax on your income for the fiscal year 2023-2024 through smart planning and wise investments. Use an income tax calculator to calculate your tax burden, and follow these 15 tips to maximize your tax savings.