In life, only two things are certain. The first one is death and the second is taxes. Tax is a hidden expense on income that requires careful planning.
As we approach the end of the financial year 2024-25, it’s important to focus on tax planning as it not only helps you save money but also contributes to your overall financial well-being. Here is how you can maximise your savings with tax planning for the financial year 2024-25 before March 31.
Choosing the right tax regime
It is important to understand the income tax regime and how it impacts you. The choice of tax regime has a direct correlation with how much tax you can save. Salaried taxpayers have the option of switching between the regimes every year – and you can make the choice even at the time of filing income tax returns before July 31.
The old tax regime allows you to claim deductions for your investments such as life insurance policies, health insurance, and investments in Provident Fund, Public Provident Fund and other instruments but has a higher tax rate than the new tax regime. On the other hand, if you choose the new tax regime, you may not be able to claim deductions but your effective tax rate is likely to be lower.
Thus, if you choose the new tax regime, your tax planning would differ significantly from the old tax regime. As a result, you need to understand your financial goals and existing investments. Let’s compare both tax regimes:
Old Tax Regime – 2024-25 (with deductions and exemptions):
| Income tax slabs* | Tax rate |
| Up to Rs 2.5 lakh | Nil |
| Rs 2.5 lakh to Rs 5 lakh | 5%^ |
| Rs 5 lakh to Rs 10 lakh | 20% |
| Above Rs 10 lakh | 30% |
| *For an individual under the age of 60 years; ^those with incomes of up to Rs 5 lakh eligible for tax rebate |
| Income tax slab | Tax rate |
| Up to Rs 3 lakh | Nil |
| Rs 3 lakh to Rs 6 lakh | 5%* |
| Rs 6 lakh to Rs 9 lakh | 10%* |
| Rs 9 lakh to Rs 12 lakh | 15% |
| Rs 12 lakh to Rs 15 lakh | 20% |
| Above Rs 15 lakh | 30% |
| *Those with incomes of up to Rs 7 lakh are eligible for tax rebate, effectively paying nil tax |
Choosing the right regime depends on your income level and ability to claim deductions. If you have significant investments and expenses eligible for deductions, the old regime might be more beneficial.
However, if you have limited deductions, the new regime could result in lower taxes. Accordingly, you need to plan for taxes.
Also read: Without HRA, old regime makes little sense; new regime scores across income slabs
Claiming deductions under the I-T Act
Section 80C allows deductions up to Rs 1.5 lakh. To avail of 80C deductions, you need to invest in PPF, equity-linked savings scheme (ELSS), National Pension System (NPS), life insurance premiums, tax-saving fixed deposits, etc. You can avail additional Rs 50,000 deduction under 80CCD(1B) with NPS.
Also, you should note that some of these investment instruments such as PPF, ELSS, and tax savings FDs come with a lock-in period of 15 years, 3 years, and 5 years, respectively. You should understand your financial goals, needs, and risk appetite before investing in them.
Apart from section 80C, there are various other exemptions allowed under the Income Tax Act, 1961 as below:
| Section | Details | Limits/conditions |
| Section 80D | Health insurance premiums |
Rs 25,000 for self and family (Rs 50,000 for senior citizens)Additional Rs 25,000 for parents (Rs 50,000 if they’re senior citizens) |
| Section 80CCD(1B) | Additional NPS contribution | Up to Rs 50,000 |
| Section 80E | Education loan interest deduction |
No upper limitAvailable for 8 years from the start of loan repayment |
| Section 80G | Donations to charitable institutions |
Deduction ranges from 50-100% of the donated amountSome donations have no upper limit |
If you are a salaried individual, you can also claim Leave Travel Allowance (LTA). However, it is limited to two journeys in a block of four calendar years.
Maximise home purchase/rent allowances
If you have purchased a home, you can utilise section 24 to claim a home loan deduction up to Rs 2 lakh. Let’s understand this with a case study of Dharak Parikh, a 30-year-old business consultant engineer from Mumbai.
Parikh, like many urban professionals, has invested in property. He purchased an apartment in suburban Mumbai with a home loan of Rs 60 lakh at an interest rate of 8 percent per annum, resulting in an annual interest payment of Rs 4.8 lakh.
Under section 24, Parikh can claim a deduction of up to Rs 2 lakh on the interest paid for his home loan. While this doesn’t cover his entire interest payment, it significantly reduces his taxable income. It’s important to note that for self-occupied properties, the maximum deduction is capped at Rs 2 lakh, regardless of the actual interest paid.
Now let’s take another case where Parikh is renting a house instead of buying a home. Parikh can avail of the HRA benefits. With a basic salary of Rs 50,000 per month, an HRA of Rs 20,000 per month, and a rent payment of Rs 25,000 per month in Mumbai, Parikh’s HRA exemption can be calculated as follows:
Actual HRA received: Rs 20,000 per month
50% of Basic Salary (for metro cities): Rs 25,000 per month
Rent paid minus 10 percent of basic salary: Rs 20,000 per month
The lowest of these three figures can be claimed as an exempt allowance. You can claim these tax benefits depending on your current house ownership/rent scenario.
Hold investments for the long term
From the financial year 2024-25, changes in the capital gains tax will be implemented, which favours long-term investments. Any listed security, held for more than 12 months attracts long-term capital gains tax (LTCG); for a shorter holding period, short-term capital gains tax (STCG) is applied. For other securities and assets, this holding period is 24 months. Capital gains tax structure for FY 2024-25
| Capital gain | Old tax rate | New tax rate (From July 23, 2024) |
| STCG on listed equity shares and equity-oriented MFs | 15% | 20% |
| STCG on other assets | Slab rates | Slab rates (unchanged) |
| LTCG on listed equity shares and equity-oriented mutual funds | 10% above Rs 1 lakh | 12.5% above Rs 1.25 lakh |
| LTCG on other assets | 20% with indexation | 12.5% without indexation |
With the new holding period rules, you can consider holding listed securities for at least 12 months to pay lower taxes and use the Rs 1.25 lakh tax benefit. You can also consider spreading the sale across multiple financial years to take advantage of the annual LTCG exemption on equity.
If your investment has incurred losses, tax loss harvesting can also be used before the end of FY25 to reduce your taxable income. However, note that there is no one size fits all. Thus, consider all the aspects related to your finances before making a decision.
How you plan your finances has a direct impact on your total tax liabilities. Treat tax planning as an ongoing process rather than a one-time activity to avoid last-minute jitters for saving on taxes. Plan early and efficiently to ensure you can claim all eligible deductions and maximise your savings.
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