Tax Planning Strategies for the Upcoming Financial Year in India

Business people and individuals need to engage in tax planning exercises as they are crucial. It has been defined as a way of handling income, investment, and expenditure to reduce the overall tax payments while still being legal. The beginning of the new financial year is the best time to plan for the whole new financial year and guarantee that your affairs are arranged in the most efficient way possible in terms of taxation. There is no better time to engage in tax planning than during the beginning of a financial year if you are an employee, a freelancer, or a businessman and woman.

In this guide, covering all essentials of taxation in India, we have outlined various income tax planning measures for Indian residents and companies, with details of permitted tax deductions, tax exemptions, and preferred modes of investment under the Indian taxation system.

Understanding the Tax Structure in India

It is necessary to begin with an understanding of how taxes function in India before opening the discussion on the various strategies in tax planning. The taxation system in India is governed by the Income Tax Act of 1961, which divides taxpayers into various categories, such as:

• Individual: Any individual who is not in a Hindu Undivided Family (HUF) or a company.
• Hindu Undivided Family (HUF): A household that is defined by relatives who are directly descended from a single person.
• Company: This covers local companies and companies from other countries as well.

In India, the financial year is from April 1st to March 31st of the next calendar year and income taxable is determined as income earned in the above specified financial year. The income tax levied depends on the individual's income, the amount and source of the income.

Taxpayers can opt for one of two tax regimes:

1. Old Regime (Deductions, Exemption and Rebates)
2. New Regime (A tax structure that has low rates of tax as compared to the presented tax credit system with non-allowance of any tax deductions or exemptions.)

Key Tax Planning Strategies for the Upcoming Financial Year

With the knowledge of the structure of the tax, we must learn and understand some strategies to help minimize your tax for the next financial year.

1. Understand the Tax Slabs and Choose the Best Regime

The Indian Taxation System generally consists of two taxation regimes, and each tax regime has different tax slabs eligible to the different taxpayers.

The first in tax planning is to acquaint one with the tax slabs and to decide whether to opt for the new or old tax structure. Here’s a breakdown of the tax slabs for the Financial Year 2024-2025 (Assessment Year 2025-2026):

• For individuals below 60 years of age:

1. Up to ₹2.5 lakh: No tax
2. ₹2.5 lakh to ₹5 lakh: 5%
3. ₹5 lakh to ₹10 lakh: 20%
4. Above ₹10 lakh: 30%

• For senior citizens (60 years or above but below 80 years):

1. Up to ₹3 lakh: No tax
2. ₹3 lakh to ₹5 lakh: 5%
3. ₹5 lakh to ₹10 lakh: 20%
4. Above ₹10 lakh: 30%

• For super senior citizens (80 years or above):

1. Up to ₹5 lakh: No tax
2. ₹5 lakh to ₹10 lakh: 20%
3. Above ₹10 lakh: 30%

During the period of the Old Regime, taxpayers’ rights to exemptions, deductions, and rebates were provided. These include:

• Section 80C: Exemptions on interest such as PPF, EPF, NSC, tax saving fixed deposit, and so on (up to ₹ 1,50,000).
• Section 80D: Medical insurance exemption at a maximum of ₹25000 for self, ₹50000 for senior citizens.
• Section 24(b): Exemption for the interest charged on the home loan (up to ₹2 lakh).
• HRA Exemption: Payment for the salary persons who stay in rented premises.

The New Regime has concessional rates of taxes where deductions and exemptions are not allowed. The new tax regime may be beneficial if your total income is comparatively low and you do not have many tax-saving investments. But if you are one amongst those who use many tax-saving mechanisms, you may be better off sticking to the old regime.

For FY 2024-25, the new tax regime slabs are as follows:

• Income up to ₹3,00,000 – Nil
• ₹3,00,001 to ₹6,00,000 – 5%
• ₹6,00,001 to ₹9,00,000 – 10%
• ₹9,00,001 to ₹12,00,000 – 15%
• ₹12,00,001 to ₹15,00,000 – 20%
• Above ₹15,00,000 – 30%

2. Help with all deductions under Section 80C

The most favoured provision of Section 80C permits a number of investments and expenses to be claimed as deductions for a specific fiscal year. The maximum claim under this section is 1.5 lakhs for all sections.

Here are some of the key investments and expenses eligible for deduction under Section 80C:

• Employee Provident Fund (EPF): Any amount paid towards the EPF is tax deductible.
• Public Provident Fund (PPF): Deposits to PPF accounts are made for the taxable year, and the interest earned in PPF accounts is tax-excused.
• National Savings Certificate (NSC): Qualified tax deductions include those made on investments in NSC.
• Life Insurance Premium: Expenditure incurred on life insurance policies also qualify for the deductions.
• Tax-Saving Fixed Deposits: These FD schemes are binding for 5 years and provide an opportunity to be exempt from taxes.
• National Pension Scheme (NPS): Investments made toward NPS are tax-deductible under Section 80C, up to ₹ 1.5 lakhs along with an additional ₹ 50000 is also tax-exempt under Section 80CCD (1B).

The overall contribution to such tax saving instruments must be enhanced so that it would help in decreasing taxable income and, at the same time, improve the savings for the long term.

3. Invest in the National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a very good tax-efficient opportunity for investing in retirement. In addition to the ₹1.5 lakh allowed under Section 80C, a deduction is allowed on contributions up to ₹50,000 on the National Pension Scheme under Section 80CCD (1B).

This is another tax advantage, putting the NPS among the most effective for saving on taxes and for preparing for retirement. NPS investments are tax-exempt when one withdraws the money after decades and the contributions made to it are also tax exempted.

4. Claim Deductions for Health Insurance Premiums (Section 80D)

Medical insurance is important and more so in the current world where many people are facing high costs to be paid before getting medical attention. For self, spouse and dependent children and the parents of the assesses,

under Section 80D, deductions are allowed for the payment made towards the premium of health insurance policies.

• ₹25,000 for a premium paid for self, spouse, and children (for persons below the age of sixty years).
• ₹50,000 for pre-paid final expenses for senior citizens, those who are sixty years of age or more. Education under both Section 80C (up to ₹1.5 lakh) and an additional ₹50,000 under Section 80CCD(1B).

Maximizing contributions to these tax-saving instruments will not only help reduce your taxable income but also increase your long-term savings.

The maximum deduction available under this section is:

• ₹25,000 for premiums paid for self, spouse, and children (for individuals below 60 years of age).
• ₹50,000 for premiums paid for senior citizens (above 60 years of age).

5. Plan Your Home Loan Repayments

In this section, the taxpayer is allowed to deduct the interest on a home loan that has been advanced to him. The maximum amount allowed as a deduction in respect of interest on the home loan is ₹2 lakh per year. This deduction is available for let-out properties as well as for self-occupied properties.

Besides, Int. deduct., an amount up to ₹1,50,000 is allowed as a deduction under Section 80 C for the part of the home loan amount referred to as the principal repayments part of the interest.

In simple words, it means properly organizing your home loan repayments can minimize your income tax liability effectively.

6. Take advantage of the House Rent Allowance (HRA)

If you are a tenant and pay rent for the house you live in, you can make a deduction for House Rent Allowance (HRA received as wages) under Section 10(13A), and the amount you can claim depends on the following factors whichever is lower:

• The amount of HRA received.
• The rent is paid by you.
• 50% of the Basic salary for metro cities (Delhi, Mumbai, Kolkata, or Chennai) and 40% for non-metro cities.

7. Utilize the Benefits of House Rent Allowance (HRA)

If you live in rented accommodation, you can claim a deduction for the House Rent Allowance (HRA) received as part of your salary. The deduction is available under Section 10(13A), and the amount you can claim depends on the following factors:

• The amount of HRA received.
• The rent paid by you.
• Your salary and city of residence.
• The city in which you live (as cities like Delhi, Mumbai, and Kolkata have higher rent allowances).

In order to get the best out of your HRA deductions, make sure you have all the necessary receipts for rent, and any other expenditures.

8. Plan for Capital Gains

Capital gains tax applies to profit arising from the sale of commodities like business premises, shares, or mutual investment funds. There are two types of capital gains:

• Short-Term Capital Gains (STCG): Profits on assets that are depreciated over 36 months or less in the case of Property or 12 months or less for stock or mutual investment. These are taxed at 15 percent for stocks and mutual funds and at the appropriate slabs for property.
• Long-Term Capital Gains (LTCG): Profits from assets consumed for more than the laid-down period. Capital gains resulting from stocks and mutual funds attract a 10% tax, with no indexing, while capital gains from the sale of property attract a 20% tax, with indexing.

To minimize capital gains tax, you can invest in tax-saving instruments like Equity-Linked Savings Schemes (ELSS) or properties with long-term potential. Additionally, utilizing the indexation benefit can help reduce your taxable capital gains on long-term assets.

9. Tax Benefits for Donations (Section 80G)

If you want to endow to charitable organizations, you can claim exemptions under Section 80G. Such contributions are provided with a 50% or 100% allowance based on the type of charity as well as the kind of donation made.

It is preferable that the charity is a registered one under section 80G and you should get a receipt from the charity organization so that you can go for the tax exemption or deduction.

10. Consider the Tax Implications of Salary Structure

There is flexibility in how a salary is paid, thus people receiving a salary can meet with their employers to determine the proper structuring of salary to meet the goals of the company while minimizing the taxes paid. Some of the tax-saving components you may want to negotiate in your salary package include:

• Transport Allowance: Tax exemptions on transport allowance can be claimed under the following conditions.
• Special Allowances: Some of the special allowances include allowances for children to be taken to school or allowances towards purchasing uniforms that are not taxed.
• Retirement Benefits: Investment in EPF, gratuity, and pension schemes also bring down taxable income.

When structured pay, has been found to reduce overall tax exposure.

11. Stay Updated on Tax Laws and Amendments

Indian taxation laws, as we all know, always go through frequent changes. One must be abreast of amendments and new provisions incorporated in each of the budgets. For instance, the current or previous year’s budget might introduce new concessions, alterations in the tax bands or new incentives to certain industries. Monitoring such change augurs well as it will assist you in planning effectively for the changes that would have an impact on taxes.

Conclusion

It is very important always to engage in good tax planning in an effort to minimize the tax amount that you are likely to be charged. As per different provisions of India's income tax laws, there are many kinds of deductions, exemptions, and tax-saving instruments available to reduce tax liability and to plan something better for the future. This way you can be sure that you have taken the best possible tax planning measures available in the upcoming financial year plan by plan, Section 80C, NPS, exemptions on Health Insurance, HRA, etc.

Since tax laws change from time to time, it is also advisable to consult the service of a lawyer or, at least, a tax consultant to help in planning your current situation strategically.

Frequently Asked Questions (FAQ)