New tax regime
When the income tax exemption limit was increased to Rs 12 lakh under the new tax system in the budget 2025, people who got millions of salary breathed a sigh of relief. This new system not only gives relief in tax compared to the old system, but also reduces the mess of formation and documentation.
But there is still a big question in the minds of the people, is there no need for tax planning now? The answer is still, the way the way has changed. The old system used to get discounts like 80C, 80D, HRA, which is not in the new system, but some easy methods are still present, which can reduce the tax burden.
Tax savings and retirement confidence from NPS
The annual income of up to Rs 12.75 lakh in the new tax system is tax free. But if your earnings are more than this, then NPS i.e. National Pension System can become a big support for you. Many people think that money is stuck in NPS for a long time, so do not invest in it. But this is a mistake. NPS not only saves tax, but also prepares strong funds for retirement.
Under section 80ccD (2), your company can put up to 14% of your basic salary in NPS and this entire money remains tax free. If you want, you can take this facility by asking the company. At the time of retirement, 60% of the total amount deposited in NPS is also tax free.
Increase contribution to EPF, double advantage
Most employees contribute at least 12% to the EPF, but many times do not give full 12% of the basic salary. If you change your salary structure and increase contribution to the EPF, then retirement saving will also increase and tax will also be saved.
Keep in mind that the contribution made by the company to the EPF is also tax free. Just keep in mind that the total contribution of NPS and EPF should not be more than Rs 7.5 lakh annually, otherwise the additional amount will be taxed.
Investment in the name of parents
Some people invest their savings in the name of parents to save tax, especially if parents have no income. Technically this is correct, but it is necessary to do it properly, such as to declare a gift and consider the back money as a gift. If you want to invest a large amount, then make a will, so that there is no legal trouble in future.
Arbitrage funds instead of FD
If you still invest money in fixed deposits (FD), then change the thinking. Interest on FD is taxable every year, while earnings in Arbitrage funds are taxable only at the time of selling. That too at a low rate. If you invest money in Arbitrage funds instead of FD and adopt methods like Gains harvesting, then there will be no tax on capital gains up to about 1.25 lakh rupees every year. This will also increase the return and save tax.
Are you freelancer or consultant?
If you are not a salary, but a freelancer or consultant, then options like NPS and EPF are not for you. In such a situation, section 44ada is of your use. Under this, only 50% of your total income will be considered taxable.
For example, if your annual earnings are 20 lakh rupees, then tax will be charged only 10 lakh rupees. Neither tension to keep the bookkeeping, nor the need to show the bill of expenses. This scheme is excellent for consultants, freelancers and retired professionals.
There are still some small discounts in the new system
Although large deductions like 80C, HRA are not in the new system, some small benefits are still available. For example, the cost of spending on office tea/coffee, office mobiles or books is tax free, provided they are related to work.
If you have rented a house, then the interest of home loan on it can also be deducted. These discounts do not apply to their own living house.