09-Jun-2023 5 best ways to Lower your Taxable Income

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CA Kinjal Mody

Discover the top 5 ways to lower your taxable income and maximize savings on income tax in India. Learn about the new and old income tax regimes, tax benefits of availing a home loan, purchasing health insurance, investing in tax-saving schemes, and opting for life insurance plans. Make informed decisions to reduce your tax burden and ensure financial security for yourself and your family. Check out this comprehensive guide for effective tax planning and filing your income tax returns on time.

Tax planning is important to reduce the tax burden so that it doesn’t hinder people’s wealth creation. For effective tax saving, taxpayers need to identify and make the best use of various instruments available for tax saving and wealth growth. As the CBDT facilitates the more intricate tax collection and related services, individuals should develop an idea regarding how to save tax in India subject to the income tax slab applicable.


Since FY 2023-24 has kicked in, it's time for individual taxpayers in India to begin their financial planning to maximize savings on income tax this year.


Here are 5 ways to optimize your Income Tax Returns:


1. Opt for the Right Income Tax Regime


Taxpayers can choose from two tax regimes to calculate their taxes. The new income tax regime has been revised after Budget 2023. It allows you to claim a full tax refund if your annual income is up to ₹7 lakhs for FY 2023-24 and a standard deduction of up to ₹50,000; however, no HRA and other deduction benefits are available. 


As for the old income tax regime, all the existing tax exemptions like HRA and deductions on LIC, PPF, interest on home loans etc., are available. However, the no tax limit is set up to only ₹2.5 lakhs.


Therefore, it is necessary that taxpayers compare the potential tax savings offered by both the regimes to make an informed decision.


Here are the slab rates for the new tax regime as well as the old tax regime.


Income Tax Slab Rates in India for FY 2023-24 (AY 2024-25)


For FY 2023-24, the new tax regime is the same for all age groups. The revised tax rates are: 


Income tax slabsRate of Taxation
Up to ₹3,00,000Nil
Between ₹3,00,001 and ₹6,00,0005% of your total income that exceeds ₹3,00,000
Between ₹6,00,001 and ₹9,00,000₹15,000 + 10% of your total income that exceeds ₹6,00,000
Between ₹9,00,001 and ₹12,00,000₹45,000 + 15% of your total income that exceed ₹9,00,000
Between ₹12,00,001 and ₹15,00,000₹90,000 + 20% of your total income that exceeds ₹12,00,000
More Than ₹15,00,000₹1,50,000 + 30% of your total income that exceeds ₹15,00,000


Income Tax Slabs for FY 2023-24 - Old Tax Regime


The Old Tax Regime for FY 2023-24 remains unchanged, and the tax slabs are as follows for individuals under 60 years of age.


Income Tax SlabsRate of Taxation
up to ₹2,50,000Nil
Between ₹2,50,000 and ₹5,00,0005% of your total income that exceeds ₹2,50,000
Between ₹5,00,000 and ₹10,00,000₹12,500 + 20% of your total income that exceeds ₹5,00,000
Above ₹10,00,000₹1,12,500 + 30% of your total income that exceeds ₹10,00,000


An additional health and education cess at 4% of the total tax payable is levied. A surcharge of a fixed percentage of the total income also has to be paid by people earning higher than ₹50 Lakh annually.


Read to know how to file returns in time for avoiding delay penalty : https://apmhconsulting.com/blogs/why-one-should-file-his-return-of-income-within-due-date


2. Avail a Home Loan and Enjoy Tax Benefits


Availing a home loan is associated with dual benefits, as it comes with diminished tax liability, along with the satisfaction of owning your own home.


Many government-mandated schemes such as PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing scheme caters towards making housing affordable in India, while Section 80C and 24(b) diminish monetary liability through reduced tax burden.


Section 80CDeduction of up to ₹1.5 lakhs on the total annual income spent towards repayment of the principal borrowed amount.
Section 24(b)Deduction on the home loan interest for purchasing, constructing a new house, or renovating or repairing an existing home. Tax exemption on home loan interest for self-occupied property can be claimed up to ₹2 Lakh annually.


Additionally, if you let-out the newly acquired property on rent, the entire interest component is exempt from annual income tax calculations.


3. Buy a Health Insurance Policy


With rising medical costs in India, coupled with deteriorating health quality owing to multiple factors, availing health insurance is becoming a necessity. Such insurance policies reduce the financial strain of individuals and their respective families at times of failing health conditions.


Tax benefits are extended by the government to stimulate individuals to avail such insurance policies, which allows them to get quality healthcare at premier medical institutions for zero or low additional charges.


Individuals can claim tax deductions on the portion of their annual taxable income spent towards premium payments under section 80D. Different amounts are exempted from such income tax calculations, depending upon the age of the insured, respectively. 


EligibilityDeduction under Section 80D
Health insurance for individuals, spouse, children (below 60 years)Up to ₹25,000
For individuals and parents (below 60 years)Up to ₹50,000 (₹25,000 + ₹25,000)
For individuals (below 60 years) and Senior Citizen parentsUp to ₹75,000 (₹25,000 + ₹50,000)
For individuals and parents (both above 60 years)Up to ₹1,00,000 (₹50,000 + ₹50,000)


The above rates are as per the Income Tax Act, 1961 as amended from time to time.  Provision for tax benefits on the total amount spent on health check-ups is also present under Section 80D, with a maximum cap of ₹5,000.


4. Tax Saving Investments and Government Schemes


Investments in the capital market and government-mandated schemes can lead to wealth accumulation through higher returns, as well as tax-saving benefits.


Numerous government-mandated schemes also offer high returns on total investments along with tax waivers. Individuals can claim up to ₹1.5 Lakhs spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act.


SchemeBenefitLock in Period
ELSS (Equity Linked Savings Scheme)Tax exemption of up to ₹1.5 lakhs.3 years
Public Provident Fund (PPF)Contribution made towards the PPF account, interest earned and maturity amount, all are tax exempted, up to a maximum of ₹1.5 lakhs.15 years (can be further extended for 5 years)
National Pension Scheme (NPS)Up to ₹1.5 lakh under section 80C of the IT Act. Additional deduction up to ₹50,000 Under Section 80CCD (1b). If 10% of the basic salary is contributed by the employer, the amount is not taxed.Until retirement
Senior Citizen Saving Scheme (SCSS) - only for individuals above 60 yearsDeduction of up to ₹1.5 lakhs is applicable5 years (can be extended to 3 more years)
Sukanya Samriddhi Yojana (SSY)Investments are tax exempted up to ₹1.5 lakhs. The interest compounded annually is also tax exempted. The maturity and withdrawal amount are also tax exempted.Till the girl child reaches 21 years of age
Unit Linked Insurance Plan (ULIP)Tax deduction up to Rs.1, 50,000 on the policy premium. Top-ups are also eligible for tax deductions under Sections 80C and 10D.5 years


5. Opt for Life Insurance Plans


Life insurance is a crucial tax saving tool, which also ensures the financial security of one’s family. However, the Union Budget 2023 proposed changes in the tax rules and exemptions for life insurance policies.


For policies issued on or after April 1, 2023, individuals can claim tax exemption on the maturity amount of life insurance policy ONLY IF the total yearly premium is up to ₹5 lakhs or if the aggregate of premiums from multiple policies is up to ₹5 lakhs.


However, taxpayers can continue to claim the tax exemption for the sum assured received on premature demise of the insured under Section 10(10D).


For insurance policies issued till 31st March 2023, the tax benefits of up to ₹1.5 Lakh spent on annual premium can be claimed under Section 80C, provided it is less than 10% of the total sum assured, if the policy is taken after April 1, 2012. In case the policy was availed before April 1, 2012, claims under Section 80C can be made if the total premium payments do not exceed 20% of the sum assured.


All these points will substantially reduce your total taxable income for a stipulated financial year, as well as help you know more about the various government-mandated provisions. Make sure you submit the income tax return form and Form 16 provided by your employer to get subsequent proceeds.

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