How to optimise tax savings under the new tax regime in FY24?
April, 11th 2023
In the Budget 2023, Finance Minister Nirmala Sitharaman made revisions to the income tax slab rates under the new tax regime. Tax savers should allocate their investments more wisely now that the new fiscal year, FY24, has already started in order to both fulfil their financial objectives and reduce their tax liability. Taxpayers must be informed about the modifications and alternatives available to minimise their taxes as the new tax system takes effect in FY24. Here are some pointers coined by various industry experts to assist you in doing that:
S. Ravi, Former Chairman of BSE(Bombay Stock Exchange)
As the new tax regime comes into effect in FY24, taxpayers need to be mindful of the changes and opportunities available to optimize their taxes. Here are some tips to help you do just that:
1. Plan your investments: Invest in instruments that are eligible for tax deductions, such as Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), National Pension Scheme (NPS), and tax-saving fixed deposits. This will not only help you save taxes but also earn good returns.
2. Claim all tax deductions: Ensure that you claim all the tax deductions available to you. For example, deductions on home loans, education loans, health insurance premiums, and medical expenses. These can significantly reduce your taxable income.
3. Use Section 80C to your advantage: Utilize Section 80C to its fullest by investing in schemes that qualify for deductions, such as PPF, ELSS, NPS, and tax-saving fixed deposits. The maximum limit for this section is ₹1.5 lakh, so ensure that you invest accordingly.
4. Opt for the new tax regime if it benefits you: The new tax regime offers lower tax rates but without deductions. Therefore, if you do not have significant deductions to claim, opting for the new regime may be more beneficial.
5. File your tax returns on time: Ensure that you file your tax returns on time to avoid any penalties or interest payments. Also, e-filing your returns makes the process faster and more convenient.
Archit Gupta, Founder and CEO, Clear
The scope of tax saving under the new tax regime is more limited than the old tax regime. However there are still a couple of ways it can be done.
1. NPS contribution through the employer u/s 80CCD(2). Under this maximum 10% of basic salary + DA can be deducted from income.
2. Travel allowance for travel between home and office if such allowance is allowed by the employer if the car is owned by the employee. Depending on the engine capacity of the car such allowance can be up to ₹2,400 per month and if driver is employed the additional amount can also be taken as deduction.
Abhishek Soni, Co-founder & CEO of Tax2win
Budget 2023 has come up with a host of changes in the new tax regime. As per the new tax regime, there will be no tax for income up to Rs.3 lakh. On income up to Rs. 7 lakh, there will be no tax liability as the benefit of rebate under section 87A is available. Salaried taxpayers can also optimize the tax by claiming a standard deduction of up to ₹50,000. By understanding the tax slabs, maximizing eligible deductions under the new tax regime, restructuring salary, and investing in tax-efficient options individuals can optimize their tax liability.
Anita Basrur, Partner Sudit K Parekh & Co. LLP
The Finance Act, 2020 introduced an optional new tax regime with lower tax rates and fewer deductions. The new tax regime was introduced with the intention to simplify the tax calculation, ease out the compliance and reduce the tax disputes. In order to gain popularity and acceptance at a broader level, Finance Act 2023 has made the new regime the default regime. Further, the Finance Act 2023 has attempted to make the scheme more attractive by introducing standard deductions, increasing the maximum exemption limit, reducing the surcharge rate, enhancing the rebate threshold amount and lower tax rates.
The new regime will also allow the taxpayers to invest in more lucrative mode of investments like equity, start-ups, etc. However, taxpayers will still have to carry out an evaluation based on their tax saving investments like 80C, 80D, HRA, interest on home loans etc. to determine which tax regime is beneficial to them. It seems that the intention is to eventually have a single tax regime with fewer deductions/exemptions. However, as of now both the tax regimes will co-exist where the new tax regime will be treated as a default tax regime while the old tax regime will need to be specifically opted for on a year on year basis.
Suman Bannerjee, CIO, Hedonova
The new tax regime, which has become the default option from FY2023-24, offers some tax benefits. Taxpayers who opt for this regime will receive a standard deduction of ₹50,000 under Section 16 (IA) of the Income-tax Act 1961. Subscribers to this regime also get a rebate under Section 87A up to 100% of the amount of income tax payable on a total income not exceeding ₹7 lakh.
The regime also offers benefits for conveyance allowance, family pension, and daily allowance, among others. Taxpayers can optimise their tax costs by opting for the new tax regime instead of the old one, especially if they have recently started earning and do not have enough funds to make an investment in tax-saving instruments or do not have any housing loan.
Prateek Toshniwal, Serial Investor, Financial Advisor and Co-Founder of IVY Growth Associates (India) | MI Capital (UAE)
Under the new tax regime for FY24, taxpayers can optimise their taxes by availing of deductions and exemptions available under the old tax regime. Taxpayers can choose between the old tax regime with more deductions and exemptions or the new tax regime with lower tax rates but fewer deductions and exemptions. It is important to carefully evaluate which regime is more beneficial based on the individual's income, investments, and tax-saving options.
One strategy for optimising taxes under the new tax regime is to maximise investments in tax-saving instruments such as Public Provident Fund, National Pension System, Equity Linked Savings Scheme, and tax-saving fixed deposits. Additionally, taxpayers can claim deductions under Section 80C, 80D, and 80G for investments in specified areas like health insurance, donations, and tuition fees.
Overall, taxpayers must weigh their options and make an informed decision to optimise their taxes under the new tax regime for FY24.
Suresh Surana, Founder, RSM India
Every taxpayer may optimize their taxes under the new tax regime in the following manner:
1. Salaried Individuals or pensioners with total income up to ₹7,50,000 can claim standard deduction u/s 16(ia) of IT Act up to Rs. 50,000 and thereafter claim rebate u/s 87A of upto Rs. 25,000 thereby bringing their effective tax rate to Nil.
2. Further, since the highest tax surcharge rate under the new tax regime has been reduced from 37% to 25% for individuals with total income exceeding Rs. 5 crores, thus bringing the effective tax rate of from 42.744% has been reduced to 39%. As such individuals with total income of more than Rs. 5 crores can opt for the new tax regime in order to get the tax rate benefit.
Akhil Chandna, Partner, Tax, Grant Thornton Bharat
Union Budget 2023-24 on February 1, 2023, introduced revised tax slabs under the new tax regime wherein the basic exemption limit was increased to INR 3 lakh from INR 2.5 lakh. To optimize the tax under new tax regime, an individual can claim:
1. a standard deduction of INR 50,000 from employment income/ pension
2. deduction towards employer’s contribution to NPS
3. expenses towards earnings from family pension
4. standard deduction of up to 30 per cent of the annual value of the let-out property, in case of rental income from property
Also, Interest and maturity proceeds from schemes such as Public Provident Fund (PPF) and Sukanya Samriddhi account and life insurance policies remain tax-exempt under the new regime.
Satyen Kothari, the founder and CEO of Cube Wealth
In the new tax regime, individuals can opt for a lower tax rate without exemptions and deductions. To optimise tax under this regime, individuals can do the following:
1. Choose the new tax regime if it results in a lower tax liability.
2. Plan investments to maximise deductions under Section 80C, 80D, etc.
3. Use deductions such as interest on home loans, rent paid, etc. if eligible for them.
4. Plan for tax-saving investments such as Equity-Linked Saving Schemes (ELSS), National Pension System (NPS), etc. as they provide a dual benefit of tax deduction and capital appreciation.