Tax planning is a crucial step in managing your finances. As the financial year 2022-23 draws to an end, it is time to start thinking about tax-saving options and deductions that you can avail of. The last date to save tax for this financial year is March 31, 2023, leaving you with only two months to put your tax-saving plans into action.
Under Section 80C of the Income Tax Act, you can claim deductions up to ₹1.50 lakh for investments such as life insurance premiums, PPF, EPF, NSCs, ELSS, and tax-saving fixed deposits. However, there are other tax-saving options which if used judiciously can help you further reduce your taxable income.
In this article, we discuss some of the tax-saving strategies that you can use to optimize your tax liability.
The government provides tax advantages to encourage people to get health insurance. The payment of health insurance premiums and other costs for medical care are tax-deductible from total taxable income under Section 80D of the Indian Income Tax Act. You are permitted to claim a tax deduction of up to ₹25,000 every fiscal year for you, your spouse, and your dependent children under this clause.
If your parents are senior citizens, you may be able to deduct an extra ₹25,000 from the medical insurance premium you paid for them. If both the individual taxpayer and the parent are above the age of 60, they are both eligible to claim a deduction of up to ₹1 lakh.
Salaried employees who live in rented housing can reduce their taxes to some extent thanks to the House Rent Allowance (HRA) supplied by their employers. Self-employed and salaried individuals who do not get HRA as part of their pay but instead reside in rental housing are eligible for tax benefits under Section 80GG.
These taxpayers are eligible to deduct the rent they pay for housing from their taxable income. According to the income tax Act, the pay component that was received as an HRA is subtracted from the taxable salary income. Contrarily, if the employee does not reside in a rental property, HRA is entirely taxed.
Section 80C allows for a maximum deduction of Rs. 1.5 lakh for principal payments made on an in-home loan throughout the year, while Section 24 allows for a maximum deduction of Rs. 2 lakh for interest payments. Taxpayers who have house loans can deduct the interest part of their loan under Section 24. If the house isn't inhabited within five years of the loan's closing date, no tax advantage will be available.
Under Section 80E, you are allowed to deduct the amount of interest paid on any education loans taken out for yourself, your spouse, your children, or any other person over whom you have legal custody. There is no limit to the amount of interest that can be deducted in a fiscal year.
You may deduct the interest from your income starting in the year that you begin repaying your student loan and continuing for the next seven years or until the total amount is paid, whichever is earlier. Additionally, this tax deduction may only be used if the loan is obtained through an approved financial institution.
National pension system
In the new tax regime, taxpayers must give up the majority of their income tax deductions and exemptions in order to take advantage of the reduced tax rates. However, Section 80CCD(2) of the Income Tax Act of 1961, a significant deduction, will still be available for the advantage of taxpayers. Section 80CCD(2) applies to employer payments paid to an employee's account in a registered pension plan, such as the National Pension System (NPS).
There are many tax-saving options available to Indian taxpayers that can help reduce their overall tax liability. By taking advantage of these tax-saving strategies, individuals and families can optimize their taxes and increase their savings. It is important to consult with a qualified accountant or financial advisor to ensure that you are taking full advantage of the available deductions and exemptions.