Tax Saving Guide 2024: Income Tax Tips & Strategies
Benjamin Franklin once said, ‘There are only two things certain in life: death and taxes.’ We can’t plan much for the first one. But as far as the latter is concerned, you can definitely plan and find an effective way to know how much you pay every year.
As the end of the financial year approaches, it is important to make informed decisions about tax-saving investments before the March 31 deadline, especially for those who opted for the old tax regime. It is not advisable to randomly allocate money to any tax-saving option.
Below are some tax saving investment options that can help you save maximum tax and build a strong financial future. By carefully considering these options and combining them with your financial goals and tax-saving needs, you can effectively optimize your tax-saving investments before the deadline. Consulting a Tax2Win tax expert can provide valuable information tailored to your specific circumstances.
Tax-saving investment options under Section 80C:
| Tax Saving Investment | Returns | Lock-in Tenure |
|---|---|---|
| ELSS Fund | Not Fixed | 3 years |
| National Pension Scheme (NPS) | 9% to 12% | Till Retirement |
| Unit Linked Insurance Plan (ULIP) | Not Fixed | 5 years |
| Public Provident Fund (PPF) | 7.1% (as of today) | 15 years |
| Sukanya Samriddhi Yojana | 7.6% | 21 years or till marriage |
| National Savings Certificate | 6.8% | 5 years |
| Senior Citizen Saving Scheme | 7.4% | 5 years |
| Bank FDs | 5.5% to 7.75% | 5 years |
Note: NPS has a separate section 80CCD(1B) that allows an additional deduction of Rs 50,000 over and above the Rs 1.5 lakh limit of Section 80C.
Mutual Fund
Equity-linked savings scheme is a tax-saving investment option under Section 80C that has two features: First, tax exemption is allowed on the investment amount under the ELSS scheme up to a maximum of Rs 1.5 lakh. Second, equity-linked savings scheme investments have a lock-in period of 3 years.
The interest rates offered by ELSS funds range approximately between 5%-18% (The interest rates offered by ELSS funds are not fixed and depend on the market performance of the underlying equity). The returns earned in equity-linked savings schemes are not constant as they vary according to the market performance of the fund.
This tax-saving investment plan provides liquidity and flexibility in investment and is best suited for people willing to take risks.
Returns from ELSS are subject to 10% long-term capital gains tax (LTCG) if the gains exceed Rs. 1 lakh in a financial year. However, the top ELSS fund in one period may not necessarily be the best for the next period as well. The best ELSS fund should be selected based on its performance in bullish and bearish market phases.
Moreover, one can track their investments in ELSS online easily and without any hassle.
National Pension Scheme
According to the Pension Fund Regulatory and Development Authority (PFRDA), the National Pension Scheme is designed to help individuals save for retirement.National Pension Scheme (NPS) is for each authorities and personal employees. Any age group of 18-70 years can participate in the NPS program.
NPS is a good tax-saving investment option as the fund management charges are quite low. Fund management in the NPS scheme is done under four accounts: equities, corporate bonds, government securities, and Alternative Investment Funds (AIFs) which invest in assets such as venture capital, private equity, real estate, etc. These 4 money owed assist traders manipulate their portfolios actively or passively.
There is a tax deduction of Rs. 1,50,000/- for self-contribution to NPS, which comes under section 80C. Under section 80CCD(1B), additional deduction of Rs. Contribution to NPS is allowed up to Rs 50,000. Therefore, this scheme offers tax benefits of up to Rs. 2 lakh.
The employer’s NPS contribution is covered under section 80CCD(2) of the Income Tax Act.
Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan is the most versatile tax-saving investment option as it allows you to invest in debt, equity or both as per your need and risk appetite. Therefore investing in insurance is beneficial from both investment and savings point of view.
Insurance provides financial protection for the entire family and a tax-free lump sum amount on maturity. The premium paid to purchase a life insurance policy is eligible for a deduction up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Moreover, the final amount received on maturity is tax-free as per section 10(10D) of the Income Tax Act.
PPF
Unit Linked Insurance Plan is the most versatile tax-saving investment option as it allows you to invest in debt, equity or both as per your need and risk appetite. Therefore investing in insurance is beneficial from both investment and savings point of view. Insurance provides financial protection for the entire family and a tax-free lump sum amount on maturity.
The premium paid to purchase a life insurance policy is eligible for a deduction up to Rs. 1.five lakh beneathneath Section 80C of the Income Tax Act. Moreover, the final amount received on maturity is tax-free as per section 10(10D) of the Income Tax Act.
Public Provident Fund (PPF)
PPF is a very commonly heard term among the taxpayers. PPF comes under tax free status, this is the reason for its popularity.PPF bills may be opened in banks or publish offices. PPF accounts can be opened in a bank or post office, but they can also be transferred from one branch to another or from post office to bank and vice versa.
For PPF, the amount invested during the financial year is eligible for deduction up to Rs 1.5 lakh under Section 80C of the Income Tax Act. The interest and maturity amount are exempt from tax under Section 10 of the Income Tax Act. The lock-in period of PPF account is 15 years.
Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is one of the crucial tax-saving funding options. Launched under the “Beti Bachao, Beti Padhao” campaign of the government, SSY focuses on improving the lives of the girl child. This scheme allows the taxpayer to deposit some amount in the account regularly and earn interest as well. Sukanya Samriddhi Yojana is also eligible for a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.
The minimum amount is Rs 250, and the scheme matures at the age of 21 years after account opening or by the time the girl gets married, whichever is earlier. Interest earned on SSY account, compounded annually, is eligible for tax exemption under Section 10(11A) of the Income Tax Act.
Maturity income or any withdrawal amount is also exempt from tax under section 10(11A) of the Income Tax Act.
National Savings Certificate
National Savings Certificate is a set profits funding scheme geared toward small and center profits investors. NSC is a good tax-saving investment option as it has low risk and is as safe as provident fund. Moreover, investment in NSC is eligible for deduction up to Rs. 1.50 lakh under Section 80C of the Income Tax Act. The interest earned is also added to the initial investment and is eligible for tax exemption. The features of NSC tax-saving investment option are as follows:
- A guaranteed return of 6.8% annual interest.
- A tax benefit of up to Rs. 1.5Lakh
- Investment can be made as low as Rs. 1,000 (or multiples of Rs. 100)
- The investor will receive the entire maturity value, which will be taxed to the taxpayer.
Tax saving options other than Section80 C
| 80TTA | Interest earned from Saving Accounts Deposits under 80 TTA |
| 80E | Interest paid toward the repayment of the Education Loan |
| 80D | Premium paid toward the Health Insurance Policies or incurred medical expenses in case of senior citizens |
| 24(b) | Interest Paid toward Home Loan |
| 10(10D) | Payouts on the maturity of the Life Insurance Plan |
| 10(13A) | Exemption of House Rent paid (if mentioned in salary break-up) |
| 80GG | Deduction of House Rent paid (if not mentioned in salary break-up) |
| 80G | Donations made to Charitable Institutions |
| 80GGA | Donations to Scientific Research and Rural Development |
| 80GGC | Donations to Political Parties |
| 80DD | Medical expenses for the disabled person |
| 80U | Flat deduction for disabled person on the basis of severity of disability |
| 80DDB | Individuals Diagnosed With Specific Diseases or Disability |
| 80TTB | Interest earned on deposits by Senior Citizens |
Health Insurance Policies
| Eligibility | Exemption limit |
|---|---|
| Health insurance for self and family (spouse and dependent children) | Rs. 25,000 |
| For self and family + parents | Rs.25,000 + ₹25,000) = Rs.50,000 |
| For self and family (below 60 years) + Parents above 60 years of age | Rs.25,000 + Rs.50,000 = Rs.75,000 |
| For self and family (with members above 60 years) + senior citizen parents | Rs.50,000 + Rs.50,000) = Rs.1,00,000 |
Interest Paid toward Home Loan
Under Section 24(B), interest payment on home loan can be claimed. The maximum limit that a taxpayer can get on home loan interest payment is Rs. If the house property is self-occupied then Rs 2 lakh.
Moreover, in cases where the home loan taken against the property is not self-occupied but is on rent, there is no limit on the maximum tax deduction. Deduction can be made on the entire interest amount.
Exemption of House Rent paid
If there is no HRA added in your salary break-up it is because you work in some small, medium sized companies. In this case, you can claim deduction on rent paid for furnished/unfurnished accommodation as per section 80GG. The same rule applies to self-employed people. The conditions for claiming the deduction are:-
- HRA should not be received during any part of the financial year
- He should not own any house in the occupied city
- Individuals should not own any house in the city of their occupation in the name of spouse, minor child or Hindu Undivided
- Family (HUF) of which he/she is a member.
- Owning a house in a city other than the occupied city is eligible for deduction, but it should not be self-occupied or vacant.
- The amount of deduction under this provision is restricted to the minimum value of the listed parameters:
- Rent paid more than 10% of total income
25% of total income after adjustment
Maximum ₹5,000 per month. - Therefore, the maximum deduction allowed during the year is ₹60,000
Deduction of House Rent paid
The Income Tax Act under section 10(13A) provides tax benefits in the minimum value of the following:-
- Actual Annual Rent Allowance distributed by the employer 50% of basic salary plus Dearness
- Allowance (DA) if the house is located in metro cities or 40% of basic salary plus DA if the house is located in other cities.
- Actual rent paid for house – 10% of basic salary plus DA.
Frequently Asked Questions
Q: What are the key changes in income tax regulations for 2024?
A: In 2024, expect changes in deduction limits, tax credits, and altered brackets. Staying updated is crucial for effective tax planning.
Q: How can small businesses optimize tax outcomes?
Absolutely! The course is designed to cater to beginners and experienced investors alike, providing a structured learning path suitable for all levels.
Q: What are the best retirement investments for tax efficiency?
A: Consider investments like annuities and tax-advantaged accounts for a tax-efficient retirement plan. Consult a financial advisor for personalized guidance.
Q: How does remote work impact taxes?
A: Remote work introduces unique deductions for home offices and virtual collaboration tools. Understand the implications to optimize your tax position.
Q: What tax benefits are associated with educational expenses?
A: Explore deductions for tuition, student loan interest, and education credits. Stay informed about 2024 updates to maximize your educational investments.
Q: How can expatriates navigate international tax considerations?
A: Expatriates should be aware of foreign earned income exclusions and reporting requirements. Consult with a tax professional to ensure compliance.
Conclusion
n summary, the 2024 Income Tax Saving and Tax Planning Guide serves as your compass in navigating the intricate terrain of financial planning. Armed with insights, strategies, and expert advice, embark on a journey towards financial empowerment and optimized tax outcomes.
