The process of tax preparation can be complicated, particularly with the range of investment possibilities and deductions available. Making the correct choices is just as essential as reducing taxes. A key component of financial management is efficient income tax planning, which primarily aims to reduce tax liabilities and increase savings. Due to the deadline of March 31, 2024, which ends the fiscal year FY 23–24, this is a great time to explore tax-saving investment options in order to increase disposable income.
Why is March 31st?
India's fiscal year begins on April 1st and ends on March 31st of the subsequent year. This differs from the calendar year that many other nations observe, which runs from January 1 to December 31.
Remember that March 31, 2024, is the deadline for completing your tax-saving plans for the fiscal year 2023–2024. It's time to act if you haven't finished this work yet.
It is important to remember that from April 1, 2023, with the implementation of the new tax system, the income tax legislation changed. The default choice is currently the new tax structure, effective for the fiscal year 2023–2024.
Under the previous tax system, India had a number of choices for tax savings that were mostly divided into investments and deductions. Below is a summary of a few well-liked choices:
Allowable deductions under the previous tax system:
1. Standard deduction: Rs 50,000 (also available under the new tax scheme) for those with salaries
2. Section 80 CCD (1B): Extra deduction for money deposited in an NPS account of up to Rs. 50,000.
3. Section 80TTA: Under this section, an individual or a HUF may deduct up to Rs. 10,000 from interest income earned on savings accounts held by a bank, post office, or cooperative organization.
4. Section 80D: Permits premium deductions for health insurance
5. Section 80G: Deductions are allowed for contributions made to qualified charities and trusts.
6. Section 80C: Investments in ELSS, life insurance premiums, house loan payments, SSY, NSC, and SCSS; and investments in PPF and EPF.
When preparing tax-saving solutions, keep in mind these common mistakes to avoid:
-
Putting off tax preparation till the very last moment (March 31).
-
Deciding on assets only on the basis of tax advantages without taking your investment horizon, risk tolerance, or financial objectives for account.
-
Not being aware of all the deductions that can be claimed for different expenses (such as investments, medical costs, etc.) under sections like 80C, 80D, etc.
-
Putting money into products (like certain standard insurance plans) that have high fees or poor returns only to receive tax benefits.
-
Putting a sizable chunk of the money you can save on taxes into endowment plans, which have low returns and no liquidity.
-
Investing exclusively in one tax-saving plan, so putting all of your eggs in one basket.
-
Not keeping accurate records of deductions, investments, and other tax-related paperwork.
