Last update:
With the expiration of 2024–25 financial year, the tax plan is important. Select between old and new tax regimens based on income and investment. While the old governance provides more discounts; New rates have low rates
The new tax regime provides limited exemption options but presents the possibility of low tax rate. (Representative/Shuttersk)
Tax represents an important expense that affects one’s income, requiring careful planning. With the conclusions near the financial year 2024–25, prioritizing the tax plan becomes rapidly important.
The tax plan not only provides the facility to save money, but also strengthens someone’s overall financial situation. Let us find out to maximize the savings through tax planning before the time limit of March 31.
First of all, it is important to select proper tax regime. Depending on income and investment, selecting between old and new tax systems affects savings. The salaried persons have the flexibility to switch the government annually, including filing income tax returns.
In the old tax regime, individuals may claim discounts on investments such as life insurance, health insurance, provident fund (PF), and Public Provident Fund (PPF), although tax rates are higher.
In contrast, the new tax regime provides limited exemption options but presents the possibility of low tax rate. As a result, it is important to choose tax regime only after considering your financial goals and existing investments carefully.
The income tax slabs in the old tax regime are as follows:
- Up to 2.5 lakh rupees: no tax
- Rs 2.5 lakh to Rs 5 lakh: 5%
- 5 lakh rupees to 10 lakh rupees: 20%
- More than Rs 10 lakh: 30%
Income tax slabs are in new tax rule:
- Up to 3 lakh rupees: no tax
- 3 lakh rupees to 6 lakh rupees: 5%
- 6 lakh rupees to 9 lakh rupees: 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, zero tax on income up to Rs 12.75 lakh will not be implemented from this time. This will be applicable from the next financial year. Therefore, someone should plan taxes.
If a person has more investment and expenses that qualify for exemption, the old regime can provide more financial benefits. Conversely, if a person has limited routes for exemption, the new regime can prove to be more beneficial.
How to save money in old tax rule
Under the Income Tax Act, the old tax regime allows to claim exemption under different classes. For example, Section 80C offers a discount of up to Rs 1.5 lakh. To benefit from this, any public provident fund (PPF), Equity Linked Savings Schemes (ELSS), National Pension System (NPS), Life Insurance Premium and Tax-Serving Fixed Deposit can opt.
Under Section 80CCD (1B), an additional Rs 50,000 discount is available in NP. However, these investments have a lock-in period, such as 15 years in PPF, three years in ELSS and five years in taxed FD. Therefore, understand your financial goals and risk hunger before investing.
In addition, other discount options such as Section 80D (Health Insurance), Section 80E (interest on education loan), and section 80G (donation) are also available. Personal people can also claim LTA (travel allowance). Rebate for two trips over the four calendar years for LTA can be availed.
Rebate if someone buys a house
If there is a homeowner, Section 24 allows a discount of up to Rs 2 lakh on the interest of home loan. Similarly, tenants can avail home rented allowance (HRA) to reduce their tax liability.
Long -term investments also provide benefits. From 2024–25 financial year, long-term capital benefits (LTCG) will be levied at lower rates on listed securities held for more than 12 months. Additionally, investors can use tax loss strategies to reduce their taxable income.
