Taxpayers, especially those who are salaried, must plan their income tax appropriately as the start of the new financial year in 2023 is just a quarter away. Working professionals should look for suitable tax-saving investments to reduce their income tax burden as tax rates may vary depending on the type of taxpayer and the type of income or sources of profit derived. Without a doubt, the most popular tax-saving options are provided by Section 80C of the Income Tax Act, which enables you to claim tax deductions. 1.5 lakhs in a financial year but exceeding the limit prescribed in section 80C and other popular deductions under section 80TTA, section 80E, section 80D, section 24(b), section 10(13A), section are available. 80DDB and Section TTB. Thus we explained how salaried individuals can save maximum income tax and how to prevent conflicts that may develop during tax preparation for the new financial year 2023, based on an exclusive conversation Dr. Suresh Surana, Founder, RSM India,
Common Tax Saving Mistakes to Avoid in 2023
(i) Not choosing the right tax regime
The taxpayer needs to evaluate the beneficial tax regime i.e. old tax regime vs new concessional tax regime through computing his tax liability in both such regimes. Since the new tax regime provides for a concessional tax rate subject to non-availability of certain specified deductions and exemptions, the taxpayer needs to keep this in mind while doing his tax planning for the year.
(ii) Do not delay tax investment till the last date
Taxpayers should not delay their investment till the last date as the taxpayer may be deprived of tax benefits in case the investment is not completed due to technical glitches. For example, in case of investments made by a taxpayer in ELSS on March 31, 2023, units of such ELSS may be allotted after March 31, 2023 and accordingly, the taxpayer may miss out on availing 80C tax deduction benefit. Same. Also, making a lump sum investment can put an unnecessary burden on the finances for the taxpayers. Therefore, such investments need to be spread throughout the year.
(iii) Not evaluating tax saving investment options
Taxpayers need to evaluate all eligible tax investment options before investing. Every taxpayer needs to analyze the purpose of such investment, the returns to be generated on such investment etc. Taxpayers should evaluate all 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. Also, the taxpayer needs to take into account the tax saving options available such as HRA exemption, claiming savings interest in respect of deduction, etc. before making any tax saving investment.
(iv) not maintaining proof of investment
Every taxpayer should carry the proof of investment in the form of documentary evidence for claiming the necessary tax deduction or exemption. The tax return filer may be required to provide investment receipts/proofs for claiming such deductions/exemptions from the taxpayer. Also, the revenue authorities may require certain taxpayers to submit their investment proofs to substantiate their claims. Therefore, every taxpayer should maintain his investment proof for at least 6-8 years even after filing the tax return.
(v) Not doing financial planning
Every taxpayer should do financial planning at the beginning of the financial year and plan tax investments accordingly. Financial planning is necessary to ensure that the taxpayer does not incur the financial burden of investing more than is actually required. Thus, every taxpayer should analyze and take into account any financial emergency such as medical emergency or major financial events such as marriage, etc., risk appetite, financial objectives/objectives etc. and plan their tax investment component accordingly. But a decision should be taken.
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 lists the top 5 tax saving investments for 2023.
| Serial Number. | Section | allowance | discount amount |
| (I) | 10(13A) – House Rent Allowance (‘HRA’) | Every salaried employee who is in receipt of HRA and who lives in a rented accommodation can avail exemption under this section, provided he does not own any residential accommodation. |
At least one of the following: (a) Actual HRA received (b) 40% of the salary* (50%, if the house is situated at Mumbai, Calcutta, Delhi or Madras) (c) Rent paid in excess of 10% of salary* * Salary = Basic + DA (if part of retirement benefits) + Turnover based commission |
| (Second) | 10(5) – Leave Travel Allowance (LTA) |
Every employee who is in receipt of LTA can claim deduction in respect of expenditure (for self and family) incurred for travel in India. * Family = spouse and children; parents, brothers and sisters who are wholly or mainly dependent on the individual |
LTA exemption 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 HUFs can avail deduction under this section on investment in certain instruments like LIC premium, ELSS scheme, PPF contribution, fixed deposit, National Savings Certificate (NSC), etc., subject to fulfillment of prescribed conditions. In addition to the above investments, expenses such as tuition fees for full-time education of children in India and repayment of housing loan principal can also be claimed under this section. | Rupee. 1,50,000 |
| (iv) | 80D | Premium paid by an individual in respect of medical insurance or contribution to a Central Government health scheme/notified scheme for self, spouse, dependent children or parents |
Rupee. 25,000 / Rs. 50,000* * Upper limit of Rs. 50,000 will be applicable when medical insurance is purchased in respect of the health of a senior citizen. Senior citizens above the age of 60 years who are not covered by health insurance will be allowed a deduction of Rs. 50,000 for actual medical expenses. In addition, deduction of 5,000 will be available within the above limits for any payment made for preventive health check-up. |
| (V) | 80CCD(1) and 80CCD(1B) Contribution to National Pension Scheme | Individuals are eligible to avail additional deduction under this section for contribution to National Pension Scheme (NPS). Salaried employees can claim the deduction which is limited to 10% of the salary of such employee in the first instance and further subject to a limit of Rs. 1,50,000. Further, as an additional deduction of Rs. 50,000 is available over the limit of Rs. 1,50,000 as above. | 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 |
| (v) | Section 24(b) and Section 80C home loan repayment | Salaried employees can also claim interest on housing loan under section 24(b). Such interest deduction is limited to Rs. 30,000/2,00,000 in case of self-occupied house property subject to specified conditions while the taxpayer can claim the entire interest in case of let-out/deemed-let-out property. Further, the taxpayer can claim deduction of principal component of repayment under section 80C of the IT Act. |
Section 24(b) – Interest component Self-occupied property – Rs. 30,000 / Rs. 2,00,000 Property let out / property deemed to be let out – Interest amount paid during the year Section 80C – Key Components |
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