Taxpayers, especially those who are salaried, must appropriately implement their income tax planning since the start of the new fiscal year in 2023 is only one quarter away. Working professionals should seek suitable tax-saving investments in order to lessen their income tax burden because tax rates might vary depending on the kind of taxpayer and the type of income or profits made from sources. Without a doubt, the most popular tax-saving options are provided by Section 80C of the Income Tax Act, which enables you to claim a tax deduction of up to ₹1.5 lakh in a financial year, but working professionals seeking deductions over and above the limit prescribed in section 80C there are other popular deductions available under Section 80TTA, Section 80E, Section 80D, Section 24 (b), Section 10(13A), Section 80DDB and Section TTB. We thus addressed how salaried individuals may save the maximum income tax and how they can prevent conflicts that may develop during tax preparation for the new financial year 2023 based on an exclusive conversation with Dr. Suresh Surana, Founder, RSM India.
The taxpayer needs to evaluate the beneficial tax regime i.e. old tax regime vs the new concessional tax regime by way of computing their tax liability in both such regimes. Since the new tax regime provides a concessional tax rate subject to non-availability of the certain specified deductions and exemptions, the taxpayer needs to factor the same while doing his tax planning for the year.
(ii) Do not delay tax investments till the last date
Taxpayers should not delay their investments till the last date as the taxpayer may lose out on the tax benefit in case the investment does not go through due to technical glitches. For instance, in case of an investment in ELSS made by the taxpayer on 31st March 2023, the units of such ELSS may be allotted after 31st March 2023 and accordingly, the taxpayer may lose out on availing the 80C tax deduction benefit with regards to the same. Further, making one-time investment may cause an unnecessary burden on the finances for the taxpayers. Hence, such investments need to be spread out throughout the year.
(iii) Not evaluating the tax saving investment options
The taxpayers need to evaluate all the eligible tax investment options before making the investments. Every taxpayer needs to analyse the purpose of such investment, the returns that would be generated on such investment, etc. The taxpayers should evaluate all the available tax saving options and choose the right investment options as per their investment criteria for diversification. It is pertinent to note that taxpayers need to avoid allocating their investments in one investment mode. Further, the taxpayer needs to take into account the available tax saving options such as HRA exemption, claiming deduction w.r.t. savings interest, etc. before making any tax saving investments.
Every taxpayer should retain the proof of investments as documentary evidence for claiming the necessary tax deduction or exemption. The tax return filer may require the taxpayer to provide them with the investment receipts/ proof for claiming such deductions/ exemptions. Further, the revenue authorities may also require certain taxpayers to furnish their investment proofs in order to substantiate their claims. Hence, every taxpayer should retain their investment proofs even after furnishing their tax returns for atleast 6-8 years.
(v) Not undertaking financial planning
Every taxpayer should undertake financial planning at the beginning of the financial year and accordingly plan for tax investments. Financial planning is necessary so as to ensure that the taxpayer does not undertake more financial burden of investments than actually required. Thus, every taxpayer should analyse and take into account any financial emergency such as a medical emergency or major financial events such as marriage, etc., risk appetite, financial objective/ purpose, etc. and accordingly decide upon their tax investment component.
Top tax saving investments for working professionals for FY23
Commenting on the question of how salaried individuals can save maximum income tax for FY23, Dr. Suresh Surana has listed out the top 5 tax saving investments for 2023.
| Sr. no. |
Section |
Allowance |
Quantum of Exemption |
| (i) |
10(13A) - House Rent Allowance (‘HRA’) |
Every salaried employee who is in receipt of HRA and who resides in a rental accommodation may avail the benefit of exemption under this section provided he/she does not own any residential accommodation occupied by him. |
Least of the following:
(a) Actual HRA Received
(b) 40% of Salary* (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)
(c) Rent paid in excess of 10% of salary*
* Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission
|
| (ii) |
10(5) - Leave Travel Allowance (LTA) |
Every employee who is in receipt of LTA can claim deduction in connection with expenditure incurred (for self and family*) towards travelling in India
* Family = spouse and children; parents, brothers and sisters who are wholly or mainly dependent on individual
|
The exemption of LTA can be availed for two journeys performed in a block of 4 calendar years i.e. 2022-2025, as per the prescribed conditions. |
| (iii) |
80C |
Individuals and HUF’s, subject to fulfilment of prescribed conditions, can avail deduction under this section on investing in certain instruments such as LIC premiums, ELSS Schemes, PPF contributions, Term Deposits, National Savings Certificates (NSC), etc. Apart from the said investments, expenditures such as tuition fees for fulltime education of children in India and principal repayment of housing loan can also be claimed under this section. |
Rs. 1,50,000 |
| (iv) |
80D |
Premium paid by an Individual in respect of medical insurance or contribution to Central Government Health Scheme / notified scheme for self, spouse, dependent children or parents |
Rs. 25,000 / Rs. 50,000*
*The higher limit of Rs. 50,000 would be applicable where medical insurance is bought in respect of health of any person who is a senior citizen.
Senior Citizens above the age of 60 years who are not covered by Health Insurance, to be allowed deduction of Rs. 50,000 towards actual medical expenditure.
Further, deduction of ₹5,000 for any payments made towards preventive health check-ups shall be available within the aforementioned limits.
|
| (v) |
80CCD(1) & 80CCD(1B) Contribution to National Pension Scheme |
Individuals are eligible to avail additional deduction under this section for contribution towards National Pension Scheme (NPS). Salaried employees may claim a deduction which is firstly restricted to 10% of the salary of such employee and further subjected to the threshold limit of Rs. 1,50,000. Further, as additional deduction of Rs. 50,000 is available over and above the threshold limit of Rs. 1,50,000 as aforementioned. |
Section 80CCD(1) - Rs. 1,50,000 [combined limit of Rs. 1.5 lakhs applicable u/s 80C, 80CCC – contribution to pension funds and Section 80CCD(1)] Section 80CCD(1B) – Rs. 50,000 |
| (vi) |
Section 24(b) & Section 80C Repayment of Housing Loan |
Salaried emloyees may also claim interest on housing loan u/s 24(b). Such interest deduction is restricted to Rs. 30,000/ 2,00,000 based on specified conditions in case of Self occupied house property whereas the taxpayers may claim the entire interest in case of a let out/ deemed to be let out property. Further, the taxpayers may claim deduction of the principal component of the repayment u/s 80C of the IT Act. |
Section 24(b) – Interest component
Self Occupied Property – Rs. 30,000/ Rs. 2,00,000
Let out/ Deemed to be let out property – Interest amount paid during the year
Section 80C – Principal Component
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