5 Tips to Consider while Tax Planning in 2024

Written by : Knowledge Centre Team

2024-08-02

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Payment of taxes eats up a significant portion of one's savings. This is especially true when one is not aware of the benefits that can come from tax planning. Tax planning is a process that involves several steps meant to decrease one's liabilities and tax payments. This is a completely legal process and can be a challenge for novices. However, it is essential to understand a few core concepts regarding it to carry out tax planning.

Tax Planning offers several advantages. In a nutshell, an individual receives four benefits by planning their tax payments.

Increasing productivity: This means that a person can convert taxable funds into income-generating sources. These sources usually refer to investing in projects and shares.
Decreasing litigation: Litigation refers to the process of decreasing tax payments through legal procedures. This implies that both the taxpayer and tax collectors.
Attaining stability economically: One can stimulate the economy organically and directly with proper tax management.
Downsizing liabilities: One can invest in different types of funds to decrease the liabilities that come with earning. The most common funds that people invest in are Long Term Equity funds and mutual funds.

Steps of tax planning

In order to begin the process of tax planning, it is essential to understand the steps that one has to undertake.

Calculating total gross income: This involves accounting for the possible sources of one's income.
The total taxable income: This includes income that is taken by the government as tax.
The payable tax: The money that one would have to pay as tax. This can be calculated using the table below:

Income Slabs or Annual Income	Tax Payable
Rs.2,50,000	Nil
Rs.5,00,000 to Rs.7,50,000	Rs.12,500 and 10% of the amount that is more than Rs.5,00,000
Rs.7,50,000/- to Rs.10,00,000	Rs. 37,500/- and 15% of the amount that is more than Rs. 7,50,000/-
Rs.10,00,000 to Rs.12,50,000	Rs 75,000/- and 20% of the amount that is more than Rs. 10,00,000
Above 15,00,001	Rs. 1,87,500/- and 30% of the amount that exceeds 15,00,000

The above categories are also known as tax brackets. One can lower the tax payable through certain methods like claiming a tax exemption for house rent allowance as well as leave travel allowance and more. This will be discussed in detail further.

Save on taxes with these 5 tax saving tips

1. Availing the benefits of Section 80

This is the most common clause that people use to receive tax deductions. According to this section, an individual is eligible for tax deductions if the annual salary they receive is under 1,50,000 per year.

However, a person can also claim a higher tax deduction if they invest in a National Pension Scheme account.

The National Pension Scheme, also known as NPS, is a pension scheme that encourages the working sector to create a pension upon retirement. According to this, one receives a considerable return on their investment as the return rate is around 12%.

2. Investing in ULIPs

Unit Link Insurance Plans (ULIPs) are special insurance plans which also act as a tax-saving instrument. These plans are a hybrid of life insurance and investment. When one hand over money to go into a ULIPs, a significant portion goes towards a life insurance plan, and the rest becomes a part of an equity based fund. Therefore, an individual can get the best of both worlds as well as enjoy tax exemptions and returns, making it one of the best tax saving tips.

At Canara HSBC Life Insurance, one can receive a number of ULIPs which contain a variety of benefits. The plans differ for an individual and a group. A few includes:

Future Smart Plan
This ULIP is eligible for individuals. The plan involves creating a fund for one's future offspring. A child of an insured will receive a sum of money after the death of the individual as well as premium funding in case of a disability.
Term Edge Plan
This plan involves ensuring the employees of a company against certain risks. This plan offers frequent periods to pay the premium as well as receive rebates.

Canara HSBC Life Insurance also offers the Jeevan Nivesh Plan. This is a traditional insurance plan. This plan offers benefits like settlement options, which involves the ability to convert the guaranteed sum that is assured on maturity into annual payouts. In addition to this, one receives higher rebates for a higher premium.

3. Investing in mutual funds

Investing in mutual funds is probably one of the more generic ways for reducing one's taxable income. This is especially true when one invests in Equity Linked Savings Scheme (ELSS). This scheme receives tax deductions on the basis of Section 80C.

It has a lock-in period of only three years, which is lower in comparison to other tax saving options like Private Provident Funds and Bank Fixed deposits. These options usually require a lock-in period of eight years.

In addition to this, there is no imposition of tax on these funds. Research has shown that one can save up to Rs 46,000 by participating in this scheme. It also has the potential to provide the highest returns in comparison to other funds.

4. Attaining tax deductions on salaries

This tax deduction mostly applies to assets that are not permanent. For example, a house on rent. If a person is paying rent for the house they live in at the moment; then they can file for tax deductions under Section 10(13A). This states that an individual can file for tax deductions if they are required to pay for the rent in the house that they reside in but have to show receipts for the same.

HRA is a tax saving scheme that usually comes from one's employer. It is calculated by the actual rent that one pays minus 10% of the salary that one receives. In case an individual lives in a metro city, then 50% of their salary is eligible for tax deductions. 40% of the salary is eligible for the individuals living in other cities.

5. Save taxes through philanthropic activities

Donating to charity also comes with its fair share of tax deductions. This aspect of tax-saving aims to encourage donations to charities and other philanthropic activities. This tax deduction also includes the donations that one might make to the National Relief Funds.

The information regarding this is present in Section 80G. The deductions can be minor to almost 100%. However, it does depend on various factors like charity or other financial conditions.

Additional deductibles that come with Section 80

Section 80 comes with a number of subsections that one can utilize to make the most of exemptions and deductibles. The schemes under this section function as tax saving instruments.

Section 80D
This is applicable to the individuals who create medical insurance. In addition to insuring themselves, one can also add loved ones. Under Section 80D, an individual can obtain a deduction worth Rs 25,000 on the insurance.

It also offers coverage to the person that has parents who are younger than 60 years. This additional deduction involves another Rs.25,000. However, this does not include medical bills.
Section 80CCC
This section involves deductions on funds that go up to 1.5 lakhs per year. In a nutshell, one can expect a deduction for the payment of any amount towards the annuity of an insurer. The plan must go towards creating a pension for the future.

The amount is taxable only when one surrenders the annuity. The interest and bonuses that one receives on this annuity are also taxable.
Section 80 CCD
This section involves the pension fund as well. A person can claim this deductible if they deposit an amount into their pension fund. An individual can attain a maximum deduction if the amount is Rs. 1.5 lakhs or 20% of the GTI of a person if they are self-employed. For individuals who are employees themselves will receive a tax deduction worth 10% of their salaries.

Additional funds creating options

Like the equity funds mentioned above, there are two other funds that are common in accomplishing tax saving.

Public Provident Fund (PPF)
On the basis of a savings fund, the Minister of Finance came up with a few tax benefits. This fund offers an individual an unfettering return rate of 8%. This return rate is fixed in each quarter.
Employee Provident Fund (EPF)
This is another tax saving plan that offers benefits during retirement and applies to all employees who receive a salary. The employer cuts out 12% of an employee's salary to transfer it into an EPF. The employee has the opportunity to receive an interest rate of close to eight percent. In addition to this, the entire fund is tax-free, including the interest. However, this is if one withdraws the amount after working continuously for five years.

With these tax saving tips, you can now start planning out your finances and taxes and save up for a great and convenient future for yourself and your kids.

FAQs Related to Section 80GG

Adjusted total income is that part of your Gross Total Income for the financial year which excludes the following incomes:

a) Income received from a foreign company
b) Any income received as an NRI that is taxable at a special rate
c) Long-term capital gains of the financial year
d) Short-term capital gains that are taxable at 10% under section 111A
e) Deductions from gross total income under sections 80C to 80U except for 80GG

Yes, it applies to all categories of individual taxpayers including NRIs.

No, you cannot claim deduction under section 80GG if you are receiving a home rent allowance with the salary. Deduction under section 80GG is available only to those individual and HUF taxpayers who are either self-employed or not receiving HRA as part of the salary.

Paying rent for residential property allows you to avail of tax deductions either as HRA or under section 80GG. While deduction for HRA is available based on the allowance received and rent paid, section 80GG is available to you when you do not receive HRA but live on rent. Section 80GG deduction is limited to the minimum of the following three:

a) Rs 5000 per month or Rs 60,000 for the financial year
b) Rent paid over 10% of Adjusted Total Income
c) 25% of the Adjusted Total Income

Yes, you can claim a deduction under section 80GG while staying with your parents. However, you need to meet the following conditions:

a) There is a rent agreement between you and your parents
b) You are paying rent to your parents which they show as income in their ITRs for the relevant financial years

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Tax Savings - Top Selling Plans

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