2024 year-end tax planning: Optimise your income tax liability

As the financial year draws to a close, it is crucial for individuals in India to focus on tax planning to optimise their liabilities and maximise savings. Understanding the tax structure, available deductions, and the implications of the old and new tax regimes can significantly impact your financial health. Here’s a comprehensive overview of what you need to know for the Financial Year 2024-25 (Assessment Year 2025-26).

Key Considerations for Tax Planning

1. Understanding Tax Regimes

In India, taxpayers can choose between two main tax regimes: the old regime, which allows for various deductions and exemptions, and the new regime, which offers lower tax rates but fewer deductions. Each has its benefits depending on your income level and investment strategy.

2. Income Tax Slabs for FY 2024-25

The income tax slabs have remained unchanged from the previous year, providing both continuity and predictability for taxpayers. Below are the detailed slabs for individuals based on their chosen tax regime.

Old Tax Regime Slabs

New Tax Regime Slabs

3. Deductions Under Each Regime

Taxpayers must assess the deductions available under each tax regime to optimise their tax liabilities effectively.

Deductions in the New Regime In the new tax regime, the following deductions apply:

• Standard Deduction: Rs 50,000 from salary or pension income.
• Section 80CCD(2): Deductions for employer contributions to NPS.

Deductions in the Old Regime The old regime allows for a wider array of deductions:

• Section 80C: Up to Rs 1.5 lakh for investments in specified instruments.
• Section 80D: Medical insurance premiums.
• Section 80TTA: Interest from savings accounts.

4. Surcharge Considerations

Taxpayers with higher incomes must consider surcharges, which add an additional tax burden on earnings above specific thresholds.

Surcharge Rates for Both Regimes

Surcharge applies to the total income after deductions. For instance, if Mr Verma's net taxable income is Rs 16,60,000, he will fall under the 15% surcharge bracket since it exceeds Rs 1 crore.

5. Evaluating the Best Tax Regime

Deciding between the old and new tax regimes involves assessing personal financial circumstances. Here are some pointers to help you choose:

• Lower Income and Fewer Deductions: If you have a gross income of up to Rs 15 lakh and minimal deductions, the new regime may be beneficial due to lower rates.
• Higher Income with Significant Investments: If you have substantial investments in tax-saving instruments, the old regime may yield better results through higher deductions.
• Investment Patterns: Analyse your existing investments and potential tax-saving options. If your investments exceed Rs 1.5 lakh under Section 80C, you might find the old regime advantageous.

6. Year-End Tax Optimisation Strategies

To maximise tax efficiency before the financial year ends, consider the following strategies:

1. Maximise Deductions: Utilise all eligible deductions before the year ends, especially under the old regime.

2. Invest in NPS: Contributing to NPS not only helps in retirement savings but also offers tax benefits under Section 80CCD.

3. Health Insurance: Invest in health insurance policies for yourself and family to claim deductions under Section 80D.

4. Charitable Donations: Make contributions to registered charities for additional deductions.

5. Review Investments: Assess your portfolio to ensure it aligns with your tax-saving goals.

Year-end tax planning is a vital process that can lead to significant savings and financial benefits. By understanding the intricacies of the income tax slabs, available deductions, and the implications of both tax regimes, taxpayers can make informed decisions. Evaluating personal financial circumstances and engaging in proactive tax planning can enhance overall financial well-being. Whether opting for the old or new tax regime, the key is to tailor your approach to fit your unique financial situation and goals.