Income Tax Planning: Tips to Save More and Pay Less in FY 2023-24

1. 1. Invest in Tax-Saving Schemes: One of the easiest and most popular ways to save income tax is by investing in tax-saving schemes. The government has introduced various tax-saving schemes like Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and Equity-Linked Savings Scheme (ELSS) to help individuals save tax. These schemes offer tax benefits under Section 80C of the Income Tax Act. You can invest up to Rs. 1.5 lakh in these schemes and claim a deduction on your taxable income.
   2. Medical Insurance: Medical expenses can take a toll on your finances. By investing in a medical insurance policy, you can not only secure your health but also save tax. The premium paid for medical insurance is tax-deductible under Section 80D of the Income Tax Act. You can claim a deduction of up to Rs. 25,000 for yourself, your spouse, and your children, and an additional deduction of up to Rs. 25,000 for your parents.
   3. Home Loan Interest: If you have taken a home loan, you can claim a deduction on the interest paid on the loan. Under Section 24 of the Income Tax Act, you can claim a deduction of up to Rs. 2 lakh on the interest paid on a home loan for a self-occupied property. If the property is rented out, there is no limit on the amount of interest you can claim as a deduction.
   4. Education Loan: Higher education has become expensive, and many individuals opt for education loans to finance their education. The interest paid on an education loan is tax-deductible under Section 80E of the Income Tax Act. You can claim a deduction on the interest paid for yourself, your spouse, or your children. There is no limit on the amount of interest that can be claimed as a deduction.
   5. Donations: Donating to a charitable organization is a noble cause, and it can also help you save tax. Donations made to certain charitable organizations are tax-deductible under Section 80G of the Income Tax Act. The amount of deduction varies from 50% to 100% of the donation made, depending on the type of organization.
   6. House Rent Allowance: If you are a salaried individual and receive a House Rent Allowance (HRA) from your employer, you can claim a deduction on the rent paid for your accommodation. The amount of deduction will depend on the HRA received, rent paid, and the city of residence. You can claim a deduction under Section 10(13A) of the Income Tax Act.
   7. National Pension Scheme: The National Pension Scheme (NPS) is a government-backed retirement savings scheme. The amount invested in the NPS is tax-deductible under Section 80CCD of the Income Tax Act. You can claim a deduction of up to 10% of your salary (up to Rs. 1.5 lakh) in addition to the deduction available under Section 80C.
   8. Leave Travel Allowance: Leave Travel Allowance (LTA) is a benefit provided by employers to their employees to cover their travel expenses during a vacation. You can claim a deduction on the amount spent on travel under Section 10(5) of the Income Tax Act. The deduction can be claimed twice in a block of four years.
   9. Savings Account Interest: Interest earned on savings accounts is also eligible for tax exemptions up to a limit of Rs.10,000 under Section 80TTA. This means that if you earn interest up to Rs.10,000 in a financial year, that amount is exempt from tax. However, any interest earned above this limit is taxable as per your tax slab rate.
      It is important to note that this exemption is only applicable to interest earned on savings accounts, and not on fixed deposits or recurring deposits. Additionally, if you have multiple savings accounts with different banks, the combined interest earned on all accounts should be considered for tax exemption purposes.
   10. Investments in National Pension Scheme (NPS) One can claim a deduction of up to Rs. 1.5 lakh under Section 80CCD(1) of the Income Tax Act by investing in NPS. An additional deduction of up to Rs. 50,000 can be claimed under Section 80CCD(1B). NPS is a long-term investment option that can help individuals build a retirement corpus while saving tax.
   11. Health Insurance Premium Individuals can claim a deduction of up to Rs. 25,000 on the premium paid towards health insurance for themselves, their spouse, and dependent children under Section 80D. In case the policyholder or any of the aforementioned family members are senior citizens, the deduction limit is raised to Rs. 50,000.
   12. Education Loan Interest Interest paid on an education loan can be claimed as a deduction under Section 80E. The deduction is available for a maximum of 8 years or until the interest is fully repaid, whichever is earlier. There is no cap on the amount that can be claimed as a deduction.
   13. Donations to Charity Donations made to charitable organizations are eligible for a deduction under Section 80G. The deduction amount depends on the type of organization and the contribution made. However, the deduction is subject to certain limits and conditions.
   14. Tax-Saving Fixed Deposits (FDs) Banks offer tax-saving fixed deposits that come with a lock-in period of 5 years and provide tax benefits under Section 80C of the Income Tax Act. The interest earned on such FDs is taxable, but the investment amount up to Rs. 1.5 lakh can be claimed as a deduction.

In conclusion, there are several ways to save income tax in the financial year 2022-23. It is advisable to plan investments and expenses in advance to make the most of the available deductions and exemptions. One must consult a tax professional or financial advisor before making any investment decisions to ensure that they align with one’s financial goals and risk profile.