As the financial year 2024 approaches its Form 12BB (investment declaration form) deadline of March 31, taxpayers are looking for ways to reduce tax outgo in the new tax regime. Under the old tax regime, employers played a crucial role in reducing tax outgo as one could do away with paying less tax if employers gave them a tax-friendly pay structure. Such avenues don't exist in the new tax regime.
Employers are mandated to deduct Tax Deducted at Source (TDS) when an employee's income surpasses a specific threshold. Employees must submit their income tax declarations by March 31 every year detailing expenses and investments from the preceding year. Employers won't cut TDS to the extent of documentary evidence submitted of such investments and expenses.
1. National Pension System (NPS)
One avenue for tax savings is the National Pension System (NPS), where taxpayers can save up to Rs 2 lakh. This includes a deduction of Rs 1.5 lakh under Section 80CCE, with an additional Rs 50,000 exclusively available to NPS (Tier I account) holders under subsection 80CCD (1B).
"Additional Tax Benefit is available to Subscribers under Corporate Sector, under section 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10 per cent of salary (Basic + DA), is deductible from taxable income, up to 7.5 Lakh," the NPS website says.
There is no tax benefit on investment towards a Tier II NPS Account. A copy of the deposit of receipt of the amount for the year will be sufficient proof to be submitted to claim the deduction.
2. Rental Income Deductions:
For those generating rental income, deductions are available under the new tax regime. For instance, if you have taken a home loan for a property and rented it out to generate some rental income, you can get deductions on municipality tax, a standard deduction of 30 per cent, and interest on home loans is also exempted under the new tax regime. The interest deduction is capped at the limit of the rent received from the property.
Also read: How Income Tax Department Assess Income
1. Home Loan Payment
Home loan repayments present huge tax-saving opportunities. Tax exemption of Rs 1.5 lakh under Section 80C on the principal amount and an exemption on the interest component under Section 24 is available. The entire amount of interest you have paid during a year will be covered by tax exemption even if you do not live in the house but rent it out.
First-time homebuyers get a rebate of Rs 2.5 lakh annually on home loan interest. Stamp duty and registration charges can also be deducted under Section 80C.
2. Saving Bank Interest (80TTA)
Tax exemption on interest from savings bank accounts is available under Section 80TTA, with a maximum limit of Rs 10,000. This applies to individuals or Hindu Undivided Families (HUFs), regardless of senior citizen status and is available for deposits in banks, co-operative societies or post office savings accounts.
3. Education Loan (80E)
Repayments of children's education loans qualify for tax exemption under Section 80E, covering the interest portion. There is no limit on the amount of interest for which tax exemption can be availed. This tax exemption can be availed by either of the parents depending on who is repaying the loan.
4. House Rent Allowance (HRA)
HRA applies to salaried individuals receiving rented accommodation support from their employer. It is a part of the employee’s salary given by the employer for rented accommodation.
Income Tax Department's circular states that where the annual rent paid is more than Rs 1 lakh per annum, it is mandatory to report the PAN of the landlord to claim the exemption. An employee working in a privately owned company is allowed to have an HRA of 50 per cent of the basic salary in metro cities and 40 per cent of the basic salary in non-metro cities.
5. Medical Insurance Premium Payment - 80D
Income tax deductions under Section 80D allow taxpayers to claim up to Rs 25,000 for health insurance of self, spouse, and dependent children. For insured individuals aged 60 years or more, the deduction limit increases to Rs 50,000. An additional deduction of up to Rs 50,000 for parents aged 60 years or more is permitted for the health insurance of parents.
Remember that starting from the financial year 2023-24, the new tax regime becomes the default option. Taxpayers need to calculate their anticipated tax-saving claims and actively opt for the old tax regime if they want it.