Income Tax FY25: How to reduce tax liability in a given FY25

Income tax deduction for reduce tax liability: It is essential to be proactive in exploring tax-saving options to ensure that you are maximising your earnings. By taking advantage of tax-saving strategies, you can increase your take-home salary and ultimately improve your financial stability.

Since the new fiscal year begins in April, you still have time to budget for taxes and reorganize your pay to reduce your overall tax liability. You can increase your yearly salary and reduce your tax liability by using proper tax planning. Expenses, savings, and investments may all be written off under the Income Tax Act within a fiscal year.

It may appear that you are making a lot of money when you look at your gross wage. But it’s crucial to take into account your net benefits, often known as take-home pay, which is what you really get left over after things like taxes are deducted. Your net compensation can be far less than you expected if you don’t take action to reduce your taxes.

It is essential to be proactive in exploring tax-saving options to ensure that you are maximising your earnings. By taking advantage of tax-saving strategies, you can increase your take-home salary and ultimately improve your financial stability. to get maximum salary benefits for employees, it is essential to minimise taxable income through tax-efficient structures. One should utilise exemptions, allowances, and deductions from the income tax act to decrease the tax burden effectively.

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Here are a few important steps:

1. Understanding Your Tax slab:-

The Old Tax Regime is the age-old tax structure that has been in place for decades. Taxpayers can claim various deductions and exemptions under different sections of the Income Tax Act. There are around 70 deductions and exemptions available under this scheme that help minimise your taxable income. It also allows a deduction of Rs 1.5 lakh under Section 80C.

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The New Tax Regime was introduced in the Union Budget 2020 with concessional tax rates. The taxpayers opting for the new tax regime cannot claim major deductions like HRA, LTA, Section 80C, and many others.

The Union government in Budget 2023 made this a default choice. If a taxpayer does not explicitly choose between the old and new tax regimes, then their taxes will be automatically calculated under the new regime.

Salaried individuals and business professionals have the choice of switching between the previous and current tax regimes. Those who do not fit into these categories, however, are only permitted to switch between the old and new regimes once in their lives.

2. Most taxpayers, especially those with high income or those having several tax-saving investments, prefer the Old Tax Regime. the Income Tax department introduced several deductions from taxable income under Chapter VI A.

• Section 80C is the most well-known and widely used deduction. But it is mostly for those who will opt for or have already opted for the Old Tax regime. You can claim deduction of up to Rs 1.5 lakh for eligible investment under Section 80C
• Public Provident Fund (PPF): Offers tax deductions (up to Rs 1.5 lakh) under Section 80C of the Income Tax Act and tax-free interest, making it a compelling option for long-term savings and wealth creation.
• Home Loan Benefits: Deductions are available on both principal (Section 80C) up to Rs 1.5 lakh and interest (Section 24) up to a maximum of Rs 2 lakh for home loans, significantly reducing tax liability.

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• Health Insurance Premiums: Premiums qualify for deductions under Section 80D (up to Rs 25,000 for individuals and Rs 50,000 for senior citizens), promoting health coverage and tax savings.
• Retirement, Sustainability, and Charity: Deductions exist for contributions to NPS (Section 80CCD) up to Rs 1.5 lakh per year, interest on electric vehicle loans (Section 80EEB), and charitable donations made to registered organisations (Section 80G).
• Tax-Free Income & Favorable Dividend Tax Rates: Interest earned on savings accounts (up to Rs 10,000) is tax-free, with a higher limit for seniors (Rs 50,000). Additionally, dividends received from stocks and mutual funds are subject to favorable surcharge rates.
• Tax Rebates: Rebates are available under both old and new tax regimes. Under the old tax regime, individuals with a taxable income of up to Rs 5 lakh can claim a tax rebate of up to Rs 12,500 under Section 87A. The new tax regime offers a potentially higher rebate of up to Rs 25,000 for individuals with income up to Rs 7 lakh

Individuals can enhance their financial well-being and significantly reduce their tax burden by putting these tax planning ideas into practice. By being proactive in their tax planning, people can increase their financial freedom and navigate the tax system with greater ease.

Taxpayers can choose to alternate between the two regime, though. The number of times you can transfer depends on your field of work or certain requirements outlined in tax laws.

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