While salaried person are busy in filing Income Tax Return for the AY 2024-25, employers are seeking delcration for deductions and opting new or old tax regime from the employees for the AY 2025-26. Therefore, it is very important to understand, it is high time to make a strategies for tax-saving.
In this blog, we are sharing Tax-Saving Strategies for Salaried Person for AY 2025-26:
A. A big question? Old Tax Regime vs. New Tax Regime:
Rate of tax under New Tax Regime:
Sl. No. | Total income | Rate of tax |
1. | Upto Rs. 3,00,000 | Nil |
2. | From Rs. 3,00,001 to Rs. 6,00,000 | 5 per cent |
3. | From Rs. 6,00,001 to Rs. 9,00,000 | 10 per cent |
4. | From Rs. 9,00,001 to Rs. 12,00,000 | 15 per cent |
5. | From Rs. 12,00,001 to Rs. 15,00,000 | 20 per cent |
6. | Above Rs. 15,00,000 | 30 per cent |
To avail the benefits of these low tax rate, an individual would not be getting the expemptions or deductions available in old tax regime as mentioned below:
Leave Travel Allowance
House Rent Allowance
Entertainment Allowance
Professional Tax
Interest on Home Loan u/s 24b: Self-occupied or vacant property
Deduction u/s 80C (Life insurance premium, EPF, PPF, ELSS, Tax-saving FD, Child Tution Fee, Repayment of housing loan etc.)
Deduction for medical insurance u/s 80D
Interest on Education loan u/s 80E
Interest on Electric vehicle loan u/s 80EEB
Donation to Political party/trust etc u/s 80G
Savings Bank Interest u/s 80TTA and 80TTB
Deduction for Disabled Individual u/s 80U
Other Chapter VI-A deductions
Rebate under section 87A allowed under old tax regime Rs. 12,500/- and under new tax regime Rs. 25,000/-. Therefore, No income tax upto income of Rs. 5,00,000/- under old tax regime and no income tax upto income of Rs. 7,00,000/-.
For rate of tax under Old Tax Regime read at https://www.pcaandco.in/post/income-tax-rate-for-the-assessment-year-2024-25
The decision of which regime to choose hinges on individual circumstances. If a taxpayer doesn't have many deductions under the old regime, switching to the new one could be advantageous. However, those who rely heavily on deductions to lower their tax liability should carefully weigh the potential savings of the new regime against the loss of these deductions.
B. Exemption from Salary
Description | Exemption |
House Rent Allowance is paid by the employers to the employees to meet the cost of rented house taken by them. [Section 10(13A)] (See Note) | Minimum of the following three amounts:
|
Transport Allowance granted to an employee working in any transport system to meet his personal expenditure during the performance of his duties for going from one place to another, provided he does not receive the daily allowance, | Lower of 70% of such transport allowance or Rs. 10,000 per month. |
Children Education Allowance - Granted to meet the tuition fees of a maximum of two children. | Up to Rs. 100 per month per child for a maximum of 2 children |
Hostel Allowance - Granted to meet the Hostel expenditure of a maximum of two children | Up to Rs. 300 per month per child for a maximum of 2 Children. |
Office Duty Allowances
| These allowances are exempt to the extent of a minimum of actual allowance received or actual amount spent for the purpose of duties of employment. |
C. Deductions from Salary
Income-tax Act allows three deductions from the salary income, i.e., Standard Deduction, Deduction for Entertainment Allowance, and Deduction for Professional Tax. Standard Deduction is allowed to every employee whose income is taxable under the head salary. While the other two deductions are allowed subject to certain conditions.
a. Standard Deduction
This deduction is available to all employees drawing salary income, including retired employees drawing pension income. The Standard Deduction is absolute and unconditional. The employee does not require to furnish any supporting evidence to claim this deduction. The deduction is the same for all employees with a ceiling of Rs. 50,000, irrespective of the salary drawn.
b. Entertainment Allowance
Entertainment allowance received by an employee is a taxable allowance. If such entertainment allowance is received by a Government employee, the deduction is allowed to him while computing the taxable income under the head salary.
No deduction is allowed under this provision to a taxpayer who is not an employee of any Central or State Government.
The amount of deduction allowable to the Govt. employee for the Entertainment Allowance shall be lower of the following:
Actual amount of entertainment allowance received during the previous year
20% of salary exclusive of any allowance, benefit, or other perquisite
Rs. 5,000
c. Professional tax
Professional tax paid by the employee, by way of deduction from his salary, is allowed as a deduction from the taxable salary income. Even if paid in advance, the professional tax paid during the year is deductible from the salary income.
If the employer pays the professional tax out of his own pocket, without deducting it from the employee's salary, then it shall be first included in the employee's income as perquisite. After that, a deduction on such professional tax is allowed from gross salary.
D. Deductions from Total Income for Individual
a. Interest on home loan under section 24(b): Upto Rs. 2,00,000 on self occupied house property
b. Under section 80C, 80CCC, for certain payments by the individuals:
Life insurance premiun, contribution to EPF or PPF, repayment of housing loan, amount deposit to sukanya samriddhi account, tution fee, term deposit for a period not less than 5 years, investment in ELSS, etc.: Upto Rs. 1,50,000
c. Under section 80CCD, for contribution to pension scheme notified by Central Government: Rs. 50,000 in addition to the above Rs. 1,50,000
d. Under section 80D, for paying medical insurance, preventive health check up and medical expenses: Rs. 25,000 for self, spouse and dependent children (Rs. 50,000 in case of person insured is senior citizen) and addition Rs. 25,000 for parents (Rs. 50,000 in case of person insured is senior citizen), Rs. 50,000 for medical expenditure for senior citizen in case no medical insurance premium paid. Maximum dedcution: Rs. 1,00,000
e. Under section 80E, for interest on education loan: Actual interest paid
f. Under section 80EEA, for interest on loan taken for certain house property: Upto Rs. 1,50,000 in excess of the deduction under section 24(b)
g. Under section 80EEB, for interest on loan taken for the purpose of purchase of an electric vehile: Upto Rs. 1,50,000
h. Under section 80GG, for rent paid in excess of 10% of the total income for residential accommodation for individuals not receiving any house rent allowance (HRA): Upto Rs. 5,000 per month or 25% of total income, whichever is less.
Don't leave tax savings to chance. Schedule a consultation with PCA & Co. to get personalized tax planning advice and ensure you're making the most of available deductions and exemptions.
[As amended by Finance Act, 2024]
留言