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As the 2024-25 financial year ends, tax planning is key. Choose between old and new tax regimes based on income and investments. While the old regime offers more exemptions; the new has lower rates
The new tax regime offers limited exemption options but presents the possibility of a lower tax rate. (Representative/Shutterstock)
Tax represents a significant expense that affects one’s income, necessitating careful planning. With the conclusion of the 2024-25 financial year drawing near, prioritising tax planning becomes increasingly crucial.
Tax planning not only facilitates saving money but also strengthens one’s overall financial condition. Let us explore how to maximise savings through tax planning before the March 31 deadline.
First of all, selecting the appropriate tax regime is crucial. Choosing between the old and new tax regimes based on income and investments influences tax savings. Salaried individuals have the flexibility to switch tax regimes annually, including when filing income tax returns.
In the old tax regime, individuals can claim exemptions on investments such as life insurance, health insurance, Provident Fund (PF), and Public Provident Fund (PPF), although the tax rate is higher.
Conversely, the new tax regime offers limited exemption options but presents the possibility of a lower tax rate. Consequently, it is crucial to select a tax regime only after carefully considering your financial goals and existing investments.
The income tax slabs in the old tax regime are as follows:
- Up to Rs 2.5 lakh: No tax
- Rs 2.5 lakh to Rs 5 lakh: 5%
- Rs 5 lakh to Rs 10 lakh: 20%
- More than Rs 10 lakh: 30%
The income tax slabs in the new tax regime are:
- Up to Rs 3 lakh: No tax
- Rs 3 lakh to Rs 6 lakh: 5%
- Rs 6 lakh to Rs 9 lakh: 10%
- Rs 9 lakh to Rs 12 lakh: 15%
- Rs 12 lakh to Rs 15 lakh: 20%
- More than Rs 15 lakh: 30%
In this budget, the zero tax on income up to Rs 12.75 lakh will not be applicable from this time. It will be applicable from the next financial year. Therefore, one should plan one’s taxes.
If an individual has more investments and expenses that qualify for exemptions, the old regime might offer greater financial advantages. Conversely, if an individual has limited avenues for exemptions, the new regime could prove more beneficial.
How To Save Money In The Old Tax Regime
Under the Income Tax Act, the old tax regime allows one to claim exemptions under various sections. Section 80C, for instance, offers an exemption of up to Rs 1.5 lakh. To benefit from this, one can opt for investments such as Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), National Pension System (NPS), life insurance premiums, and tax-saving fixed deposits.
An additional Rs 50,000 exemption is available in NPS under Section 80CCD (1B). However, these investments have a lock-in period, like 15 years in PPF, three years in ELSS, and five years in tax-saving FD. Therefore, understand your financial goals and risk appetite before investing.
Apart from this, other exemption options like Section 80D (Health Insurance), Section 80E (Interest on Education Loan), and Section 80G (Donation) are also available. Salaried individuals can also claim LTA (Leave Travel Allowance). An exemption can be availed for two journeys in four calendar years for LTA.
Exemption If One Buys A House
If one is a homeowner, Section 24 allows for an exemption of up to Rs 2 lakh on home loan interest. Similarly, tenants can avail of the House Rent Allowance (HRA) to reduce their tax liability.
Long-term investments offer tax advantages as well. From the 2024-25 financial year onwards, Long-Term Capital Gains Tax (LTCG) on listed securities held for over 12 months will be levied at a lower rate. Additionally, investors can utilise Tax Loss Harvesting strategies to further reduce their taxable income.
