The World at large goes through financial and economic downturn as we move from year to year with various governments striving to maintain status quo as also to bring in measures to improve the same. While this is the case with the ruling governments, the common man in general will be concentrating on how to remain financially strong irrespective of the regional economy and other factors. But there is a set of humans called Salaried Class or Businessmen who were kept in suspense as they move from one financial year to another in order to know what will be left with them by remaining a legal resident and tax abiding individual.
As we are moving ahead with the eventful year 2024, with a new Parliament expected in the sub-continent by the second quarter we are in for a courageous financial budget from the new Indian Finance Minister. With this back ground the interim budget was released on the expected lines on 1st Feb’24, that has opened the Pandora’s box with brief highlights as provided below and expects the tax payer to plan well in advance so as to avoid Tax Liability in the ensuing Assessment Year 2024-25 or the Financial Year 2023-24 of which we are left with only around thirty days to execute.
Brief Highlights of the Year 2024-25 Interim Budget:
- There are No Changes in Direct and Indirect Taxes including Export Duties
- Income tax dues were withdrawn till Rs.25,000/- for FY 2009-10 and before and till Rs.10,000/- for FY 2010-11 to 2014-15.
- A Scheme to help middle class living in rented houses, to buy or to build their own house.
- Tax benefits to start-ups and investments made by sovereign wealth or pension funds extended by 1 year till 31 March 2025.
- The government has allocated Rs. 15,500 crore for various electronics manufacturing programmes, including semi-conductor mission, mobile and IT hardware schemes.
- The government has also proposed Rs. 4,203 crore incentives for assembly, test and packaging plants.
We hereby provide guidance for Tax Planning and Investment Strategies for Tax payers in general to stay financially strong.
Tax Planning is nothing but the analysis of one’s financial situation from tax efficiency point of view. In order to remain as a law abiding citizen, it becomes mandatory to plan and meet tax liability and same time to reduce the same by way of investments in schemes supported by the Income Tax Rules and Regulations.
Tax Planning in real terms is nothing but Plan your Cash Outflow against your Income or Cash Inflow in such a way that you can harvest your outflow and gain income over the same, while you reduce your Tax Outflow which may end up as No Return.
General Principles of Tax Planning are
- Maximize non-taxable receipts
- Minimize non-deductible expenses
- Apply Capital receipts in the acquisition of qualifying capital expenditure and
- Avoid outright default of tax provisions to eliminate payment of interests and penalties.
Tax planning or Tax Avoidance can be accomplished by way of utilizing retirement plans, holding on to investments for more than a year and offsetting capital gains against capital losses.
In spite of applying various strategies to reduce our tax outflow, still tax planning has its own limitations like the tax laws and regulations undergo changes at short notice that will affect long term planning, investment schemes with the sole purpose of tax avoidance may end up with legal consequences as also we may need professional assistance that will result in additional expenses in the name of fees and charges.
With the Income Tax Department introducing New Tax Slabs, effective from Financial Year 2020-21 available in parallel to the Old or existing Slabs and which is yet to gain popularity, 6 out of 10 Assesses are in a dilemma to adopt the new tax regime and are yet to embrace its benefits as they go with the fact that majority of deductions that they used to claim under section 80C are not available under the new tax regime. But same time they fail to understand the overall benefit or definite reduction in tax liability guaranteed under the new tax regime.
- New Tax Regime will be the default tax regime. However, taxpayers can opt for the old regime until further information.
- A Tax rebate has been introduced under the new tax regime on income up to Rs.7 Lakhs, which means that there will be No Tax Liability for Income below Rs.7 lakhs
| Taxable Income in Indian Rupees | |||
| Under Old Regime | Under New Regime | Old Tax Rates | New Tax Rates |
| Up to 2,50,000 | NIL | ||
| Up to 3,00,000 | NIL | ||
| 2,50,001 to 3,00,000 | 5% | ||
| 3,00,001 to 6,00,000 | 5% | ||
| 3,00,001 to 5,00,000 | 5% | ||
| 6,00,001 to 9,00,000 | 10% | ||
| 5.00,001 to 10,00,000 | 20% | ||
| 9,00,001 to 12,00,000 | 15% | ||
| Above 10,00,000 | 30% | ||
| 12,00,001 to 15,00,000 | 20% | ||
| Above 15,00,000 | 30% | ||
Under the New Tax Regime we have Standard Deduction of Rs. 50,000/- and the highest surcharge rate of 37% has been reduced to 25% to help those who earn more than Rs. 5 Crores with their overall tax rate decreasing from 42.74 % to 39%.
Before we proceed with the list of Investments that will boost your net wealth and same time avail tax deductions on the same, let us look into List of Exemptions available under the New Tax Regime:
- Transport allowance w.r.t person with disabilities – available u/s 10(14) – with ceiling limit provided therein.
- Conveyance Allowance exempted u/s 10(14)ii to the extent of Rs.19,200/- per annum
- Travel/Tour/Transfer compensation – Section 10(14)( i )provides exemption towards actual amount paid as allowances for Travel or Transfer of duty including any sum paid in connection with the transfer, packaging, and transportation of personal effects of such transfer
- Perquisites for Official purposes – Non-taxable perquisites/fringe benefits include travel allowance, computer or laptop provided for official use, refreshment provided by employer during office hours, medical aid, health club, sports club etc..
- Exemptions for compensation received on Voluntary Retirement or Separation u/s 10(10C) up to Rs.5 Lakhs.
- Leave Encashment u/s 10(10) – Any amount received as Leave Encashment is fully taxable for all employees. But tax relief is available u/s 89. Whereas the same received on retirement as well as by Central or State Government Employees are fully exempt. Also u/s 10(10)AA( ii ) Leave Encashment received by Legal Heir of a deceased employee if Fully Tax Free.
- Interest on Home Loan u/s 24–Exemption available up to Rs.2 Lakhs for Owner Occupied Property and wholly on Let-out property
- Gifts received by a tax payer is exempt up to Rs. 50,000/- and one can claim exemption even if it extends this limit provided the same is received from a relative. In terms of Gift / Surplus income paid/transferred by the tax payer the same is fully deductible IF it is given to Parents and invested in their name.
- Employers’ contribution to Employees NPS Accounts u/s 80 CCD(2) – Deductible up to 10% of (Basic + DA
- ) or Rs.7.5 Lakhs. Also Employers can claim deduction up to 10% of Employees Salary (Basic+DA) as Business Expense in their Profit and Loss Account.
- Additional Employee Costs u/s 80JJA – Under this section Employers’ or Businesses can claim up to 30% on increased employee expenses for a consecutive period of three years.
- Deductions on Deposits in Agniveer Corpus Fund u/s 80 CCH(2) – The entire amount of Deposit by an Individual/Applicant and the Central Government can claim Deduction, on subscriptions on or after Nov 1st 2022. This Deduction is available under both Old and New Tax Regimes.
In case of Salary Income, New Tax Regime allows Standard Deduction as also family pensioners can claim either Rs.15,000/- or 1/3rd of their Pension whichever is lower. Benefit of Standard Deduction will be allowed to pensioners only IF the pension is taxable as Salary Income. If you choose pension as income from other sources, then the benefit of standard deduction will not be applicable.
Let us approach this with an Assesse being a Resident Individual having Taxable Income of Rs.10.50Lakhs and how he/she can Plan under both the New and Old tax regime and ends up with Zero Tax Liability:
Best Investment options with limitations on Tax Liability:
| S. # | Scheme | Returns Past 5 yrs | Lock-In Period | Features |
| 1 | NPS | 8.16% | Till Retirement | 1) Open to Individual Indian Citizens in the age group 18 to 70 yrs other than HUF and Persons of Indian origin 2)Tax Savings available u/s 80 ( c ) upto 1.5 lakh / 80( CCD)1b additional 50,000 and 80(CCD)(2) upto 10% of basic salary provided by the employer |
| 2 | ELSS | 18.24% | 3 Years | Two in One mutual fund investment with Tax Savings + Wealth Creation.80% of your Portfolio will be Invested in Equity for a positive long term wealth. Most promising ELSS Funds with Returns in % 1Yr 3 Yr 5 Yr Quant ELSS Tax Saver 31.51 34.90 31.09Bandhan ELSS TAX Saver 28.83 26.82 20.91Parag Parikh ELSS Tax Saver 29.07 23.80 -Kotak ELSS Tax Saver 23.99 22.01 19.49Canara Robeco ELSS TAX Saver 24.32 19.79 20.05 |
| 3 | ULIPs | 8.15% | 5 Years | Maturity proceeds from ULIPs are tax free u/s 10(10d) provided the life cover is at least 10 times the annual premium. |
| 4 | SCSS | 8.2 % Jan-Mar’24 | 5 Years | SCSS with interest rate of 8.2% offered by most banks has a maximum investment limit of 30 Lakhs and the investor has the benefit of extending the SCSS account multiple times. Though the interest earned is taxable, senior citizens will get tax exemption upto Rs.50,000/-, which means an investment of Rs.6.25 Lakhs will earn tax free interest. |
| 5 | Sukanya Samrithi Yojana | 8.2 % Jan-Mar’24 | Till 18 Years of the Child | In comparison to SCSS, Interest earned under Samridhi Scheme is fully tax free. Only challenge to select this scheme is that it is open only to Tax payers whose daughters are below 10 years. |
| 6 | Retirement MFs | 7 – 9 % | 5 Years | Top 5 Retirement Funds with Returns in % 1Yr 3 Yr 5 Yr UTI Retirement Fund 17.61 13.83 10.96 Franklin India Pension 15.29 9.76 9.86 Tata Retirement Savings 13.41 7.54 9.13 HDFC Retirement Savings 12.42 9.05 9.59 Nippo India Retirement Income 10.94 6.55 8.38 |
| 7 | NSCs & FDs | 7 – 8 % | 5 Years | NSCs provide ease of investment with less paper work.Compared to Bank FDs, NSCs are more attractive as they offer 7.7 % and the Interest earned are deductible in the following years |
| 8 | Pension Plans | 7–14% | Till Retirement | |
| 9 | PPFs | 6 – 7 % | 5 Years | PPFs are 100% Tax Free as maximum amount that can be invested is 1.5 Lakh equivalent to deduction u/s 80( c ) |
| 10 | Life Insurance Policies | 5 – 6 % | Minimum 5 Years |
| Apart from the above, we have other investment options to choose from: 1.Section 80TTA provides Tax Deduction on Interest on Post Office Savings Account including Time-Deposit Accounts up to Rs.10,000/- Apart from the above, we have other investment options to choose from: 1.Section 80TTA provides Tax Deduction on Interest on Post Office Savings Account including Time-Deposit Accounts up to Rs.10,000/- 2. Bonds – Interest Income on Investment Bonds, both listed and unlisted are Tax Deductible u/s 193 up to 10%. In terms of Unlisted Bonds held for less than 36 months, any gain realized will attract STCG and is taxed at the individual’s slab rate. If the same is held for more than 36 months it will come under LTCG and is taxed @ 10% without indexation or @ 20% with indexation plus surcharge and cess. 3. Capital Guarantee Plans – Premium payment is eligible for tax deduction up to 1.5 lakhs u/s 80(c) but the drawback here is that these plans are locked for longer period and is suitable only for investors with long-term investment goal. 4. Liquid Funds – Dividends received on Debt Mutual Funds are tax free but any Redemption of units are subject to STCG or LTCG. 5. Child Savings Plans – Premiums paid on Child Education Plans are tax deductible up to Rs.1.5 Laks u/s 80( c ) 6. IPOs – Investments on Shares & IPOs does not invite any tax liability but will invite Capital gains when the same is Sold. 7. Gold – Investment on Gold can be considered the best move to park our savings as the same will be giving good returns in the long run. But when the same is Sold in the market it will attract Capital Gains. 8. Real Estates – Investment in immoveable property is again considered for good returns. Whenever the property is Sold, then the proceeds from the sale of the residential property is reinvested in a house property within three years of purchase, then such amount is tax free. Morever, if an investor has invested in a residential property one year prior to selling a capital asset, then there will be No Capital Gain tax. 9. Cryptocurrencies – Investment in Cryptocurrencies invites a much higher risk and any gains from trading on these are taxed at 30% plus 4% cess u/s 115BBH, even though one can expect high returns. |
Tax planning for Senior Citizens -Senior Citizens aged 75 Years and above need not file IT Returns IF they have only Pension Income. -Senior Citizens can claim a deduction up to Rs.50,000/- per annum on the interest earned on FDs u/s 80TTB. This deduction is available only to senior citizens and is in addition to the tax deduction available u/s 80C.
Advance Tax: Having successfully planned our tax outflow and worked out on various investment avenues to reduce the same, with specific Gross Income in hand as received over the last ten months from April 2023 to Jan’2024, without waiting for Form 16 or Form 16A from the employer, it is advisable to make an ad hoc amount as Advance Tax right now during February or March 2024 so as to avoid Tax Burden during July’24.
Wish you all Success with a well optimized Tax outflow, while you have laid the foundation for maximum returns on your investments.
Catch and Cater 
Wonderful and useful blog Kanna. Timely also. Will be useful to youngsters. Many waste their hard earned money without proper guidance.
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