The Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman, introduced several changes to the tax regime aimed at simplifying the tax structure and providing relief to taxpayers. Here are some effective tax-saving strategies following these new announcements.
- Understanding the New Tax Slabs
The revised tax slabs under the new regime are designed to benefit middle-income earners. Here’s a quick overview:
- Income up to ₹3 lakh: No tax
- ₹3 lakh to ₹7 lakh: 5%
- ₹7 lakh to ₹10 lakh: 10%
- ₹10 lakh to ₹12 lakh: 15%
- ₹12 lakh to ₹15 lakh: 20%
- Above ₹15 lakh: 30%
By opting for the new tax regime, salaried employees can save up to ₹17,500 annually.
- Maximizing Standard Deductions
The standard deduction for salaried employees has been increased from ₹50,000 to ₹75,000. This means you can reduce your taxable income by this amount, thereby lowering your tax liability. Pensioners also benefit from an increased deduction on family pensions, now set at ₹25,000. - Investing in Tax-Saving Instruments
Section 80C of the Income Tax Act allows deductions up to ₹1.5 lakh for investments in various instruments such as:
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Equity-Linked Savings Scheme (ELSS)
- Life Insurance Premiums
- Fixed Deposits (FDs) with a tenure of 5 years or more
These investments not only help in saving taxes but also provide good returns over time.
- Utilizing Section 80D for Health Insurance
Health insurance premiums paid for self, spouse, children, and parents are eligible for deductions under Section 80D. The limits are:
- ₹25,000 for self, spouse, and children
- An additional ₹25,000 for parents (₹50,000 if they are senior citizens)
This can significantly reduce your taxable income while ensuring financial protection against medical emergencies.
- Claiming Deductions on Home Loan Interest
Under Section 24(b), you can claim a deduction of up to ₹2 lakh on the interest paid on home loans for a self-occupied property. Additionally, under Section 80EEA, first-time homebuyers can claim an extra deduction of ₹1.5 lakh on interest paid, provided the loan is sanctioned between April 1, 2019, and March 31, 2024. - Taking Advantage of the National Pension System (NPS)
Contributions to the NPS are eligible for tax deductions under Section 80CCD(1B) up to ₹50,000. This is over and above the ₹1.5 lakh limit under Section 80C. The employer’s contribution to NPS is also deductible up to 14% of the salary for government employees and 10% for others. - Leveraging HRA and LTA Exemptions
House Rent Allowance (HRA) and Leave Travel Allowance (LTA) are significant components of a salaried individual’s income. HRA can be partially or fully exempt from tax if you live in rented accommodation. LTA can be claimed for travel expenses incurred during leave, subject to certain conditions. - Exploring New Tax Regime Benefits
The new tax regime offers lower tax rates but does not allow most deductions and exemptions. However, it simplifies the tax filing process and can be beneficial for those who do not have significant investments or deductions. Compare both regimes to see which one offers more savings based on your financial situation. - Utilizing Capital Gains Exemptions
The budget has simplified the capital gains tax structure.
Long-term capital gains (LTCG) on equity investments are taxed at 12.5%, while short-term capital gains (STCG) are taxed at 20%. Investing in specified bonds under Section 54EC can help you save on capital gains tax.
- Claiming Deductions for Education Loans
Interest paid on education loans is deductible under Section 80E. There is no upper limit on the amount that can be claimed, and the deduction is available for a maximum of 8 years.
Conclusion
The Union Budget 2024-25 has introduced several measures to simplify the tax system and provide relief to taxpayers. By understanding and utilizing the various deductions, exemptions, and investment options available, you can effectively reduce your tax liability and maximize your savings. Always consult with a tax advisor to tailor these strategies to your specific financial situation and ensure compliance with the latest tax laws.