Tax Planning Tips for FY 2024-25: Maximize Your Savings

As we approach the financial year 2024-25, effective tax planning has become a crucial part of financial management for both individuals and businesses. With ever-changing tax laws, deductions, and exemptions, it's essential to stay updated and make informed decisions that help you optimize savings. Whether you're salaried, self-employed, or running a business, smart tax planning ensures you not only comply with regulations but also retain more of your hard-earned income.

Here are some key tax planning strategies to maximize your savings for FY 2024-25:

1. Understand the New vs. Old Tax Regime

In recent years, taxpayers in India have been given the choice between the old tax regime with deductions and exemptions and the new tax regime with lower slab rates but without exemptions. Before choosing a regime, it’s important to evaluate your income structure and potential deductions.

• Old Regime: Ideal for those who can claim significant deductions under Sections 80C, 80D, home loan interest, and other exemptions.
• New Regime: More suitable for taxpayers with fewer investments or those who prefer a simplified filing process without the need to track multiple exemptions.

Tip: Use online tax calculators or consult with a tax advisor to assess which regime benefits you the most.

2. Maximize Section 80C Investments

Section 80C allows deductions of up to ₹1.5 lakh, reducing your taxable income. Some of the most popular investment options under 80C include:

• Public Provident Fund (PPF): A long-term, risk-free option with tax-free interest.
• Equity-Linked Saving Scheme (ELSS):Offers market-linked returns with a mandatory lock-in of 3 years, and also provides the opportunity for capital growth.
• National Savings Certificate (NSC): A low-risk savings instrument, ideal for conservative investors.

Tip:Diversify your 80C investments based on your risk tolerance and financial goals.

3. Take Advantage of Health Insurance (Section 80D)

Health insurance premiums not only protect you against unexpected medical expenses but also offer tax benefits. Under Section 80D, you can claim:

• Up to ₹25,000 for health insurance premiums paid for yourself, spouse, and children.
• Up to ₹50,000 if you are a senior citizen or paying premiums for senior citizen parents.

Tip:In addition to health insurance, preventive health checkups are eligible for a deduction of up to ₹5,000 within the overall 80D limit.

4. Save Tax Through Home Loan Benefits

For individuals with home loans, you can claim both:

• Principal Repayment: Deduction under Section 80C up to ₹1.5 lakh.
• Interest Repayment: Deduction under Section 24(b) for interest paid, up to ₹2 lakh in a financial year.

For first-time homebuyers, an additional deduction of up to ₹1.5 lakh can be claimed under Section 80EEA for properties valued up to ₹45 lakh (subject to conditions).

Tip:Keep an eye on interest rates and consider refinancing your home loan if it helps lower your interest burden.

5. Optimize Savings for Senior Citizens

Senior citizens enjoy additional tax benefits. Apart from higher Section 80D limits for health insurance, they can also claim higher exemptions on interest income:

• Section 80TTB: Allows deductions of up to ₹50,000 on interest earned from savings accounts, fixed deposits, and other deposit schemes.

For super senior citizens (above 80 years), no tax is payable on income up to ₹5 lakh.

Tip:Explore senior citizen-specific savings schemes like the Senior Citizens’ Saving Scheme (SCSS) for risk-free returns and tax benefits.

6. Leverage NPS for Additional Savings (Section 80CCD)

The National Pension System (NPS) offers tax benefits under:

• Section 80CCD(1):Contributions are deductible up to ₹1.5 lakh (part of Section 80C limit).
• Section 80CCD(1B):An additional deduction of ₹50,000 for contributions made to NPS, beyond the ₹1.5 lakh limit of Section 80C.

Tip:NPS is an excellent retirement planning tool, offering both tax-saving benefits and market-linked returns.

7. Claim HRA and Rent Deductions

If you’re a salaried individual living in rented accommodation, you can claim House Rent Allowance (HRA) under Section 10(13A). The HRA deduction depends on your salary, the city you live in, and the actual rent paid.

If you do not receive HRA but still live in a rented property, you can claim a deduction under Section 80GG, subject to certain conditions.

Tip:Ensure you have rent receipts and a rental agreement in place to substantiate your HRA claims.

8. Utilize Section 80E for Education Loan Interest

If you have taken an education loan for yourself, your spouse, or children, the interest paid on the loan is eligible for deduction under Section 80E. This deduction is available for up to 8 years or until the loan is repaid, whichever is earlier.

Tip:There is no upper limit for claiming deductions on interest paid under Section 80E, making it a great tool for higher education financing.

9. Keep an Eye on Capital Gains Tax

If you plan to sell assets like real estate, mutual funds, or stocks, understanding capital gains tax is critical for tax planning:

• Short-term capital gains (STCG): Taxed at 15% for equities and at normal slab rates for other assets.
• Long-term capital gains (LTCG):Taxed at 10% for equities exceeding ₹1 lakh and at 20% for other assets after indexation.

Tip:Consider holding assets for the long term to benefit from lower tax rates on LTCG.

10. Utilize Donations for Tax Savings (Section 80G)

Contributions to approved charitable organizations are eligible for deductions under Section 80G. Depending on the charity, you can claim either 50% or 100% of the donated amount as a deduction.

Tip:Ensure that the organization has a valid 80G certificate to claim the deduction.

Conclusion

Tax planning is not just about saving money; it’s about aligning your financial decisions with your long-term goals. The key is to stay informed about the latest tax laws, assess your financial situation, and make the most of available deductions and exemptions. For the financial year 2024-25, careful planning and the right investments can help you maximize savings and minimize your tax liabilities.

Consult with a tax professional, just like we have at ABJ & Co., to ensure that your tax strategy is optimized and to take proactive steps to secure your financial future.