Tax Planning By Salaried Assesses

For salaried individuals, who often have limited avenues for deductions compared to business persons, strategic tax planning can make a significant difference in take-home income and long-term wealth creation.

The New Tax Regime introduced under Section 115BAC of the Income Tax Act which offers the option to pay income tax at reduced rates by foregoing certain exemptions and deductions is the default option for Salaried Individuals (without business income) starting from the Assessment Year (AY) 2024-25. If assessee wish to continue with the New Tax Regime, no additional action is required.

In new tax regime, Chapter-VIA deductions cannot be claimed, except deduction u/s 80CCD(2)/80CCH/80JJAA as per the provision of Section 115BAC of the Income Tax Act, 1961.

In case, taxpayer wants to claim any deductions (as applicable), then taxpayer needs to choose the old tax regime by selecting “Yes” option in ITR 1 / ITR 2 (or) “Yes, within due date” option in ITR 3 / ITR 4 / ITR 5 in the field provided for “opting out option” under Schedule ‘Personal Information’ or ‘Part- A General’ in the respective ITR.

It means by choosing the New Tax Regime, assessee has to forgo certain exemptions and deductions available under the Old Tax Regime. However, certain deductions, such as employer contributions to the National Pension Scheme (NPS) under Section 80CCD(2), are still available under the New Tax Regime.

The option to choose between two regimes may vary from person to person. It is advisable to do a comparative evaluation and analysis under both regimes and then choose as per requirement.

Apart from the option to choose between Old and New tax regime, every salaried employee should first understand the components of their salary. Generally, the following component are present in salary-

• Basic Salary

• Allowance (such as House Rent Allowance, Dearness Allowance)

• Provident Fund (PF)

• Perquisites (car, accommodation, etc.)

Each of these has different tax implications.

Key Tax Planning Strategies in old regime

1. Section 80C- It is advisable to utilize deduction of Section 80C to the fullest. This is the most commonly used deduction. Eligible investments/payments include:

• Employees' Provident Fund (EPF)

• Public Provident Fund (PPF)

• Life Insurance Premiums

• Equity Linked Saving Schemes (ELSS)

• Principal repayment of housing loan

• Tuition fees for children

• 5-year tax-saving fixed deposits

2. HRA Exemption-If assessee lives in a rented house and receive HRA as part of his salary, you can claim HRA exemption under Section 10(13A).

Exemption is lower of the following-

• Actual HRA received

• 50% of salary (metro) / 40% (non-metro)

• Rent paid minus 10% of salary

If you're not receiving HRA but still paying rent, you can claim deduction under Section 80GG.

3. Section 80D- Medical Insurance- Assessee is also eligible to claim deduction under section 80D if he will pay premium.

Premiums paid for health insurance policies are deductible:

• Rs. 25,000 for self, spouse & children

• Additional Rs. 25,000 for parents where age is below 60 or Rs. 50,000 when age is above

Total deduction up to Rs. 1 lakh is possible if both self and parents are senior citizens.

4. Tax Benefits on Home Loans- Home loans come with tax benefits like Section 24, which provides exemption on interest repayments.

Deduction related to a housing loan is as follows-

• Interest on housing loan: Up to Rs. 2 lakh under Section 24(b)

• Principal repayment: Part of Section 80C

• Additional Rs. 1.5 lakh deduction for first-time homebuyers under Section 80EEA, subject to conditions

5. Section 80E – Education Loan Interest- If assessee can obtain Education loan for himself or his relative, then entire interest paid on education loans (for self, spouse, or children) is deductible for up to 8 years.

6. Section 80CCD- NPS Contribution

Rs. 50,000 additional deduction under Section 80CCD(1B) (over and above Rs. 1.5 lakh under 80C)

A great option for retirement-focused tax planning. This deduction is

7. Salary Restructuring to Optimize Tax- Assessee can request your employer to rework your CTC structure for tax efficiency.

Include components like: Meal coupons, Leave Travel Allowance (LTA), Telephone Reimbursement, Books/Research Allowance, etc.

Opt for car lease or driver salary reimbursements if applicable.

Key Tax Planning Strategies in new tax regime

Lower rate of tax- In new tax regime most deductions/exemptions like 80C, HRA, LTA, 80D, etc. are not allowed, however, Lower slab rates, making it beneficial for those who have lower investments.

Ask your employer to route more compensation via NPS employer contribution (Sec 80CCD(2)), PF contribution, Food/meal benefits Gratuity, group term insurance, health insurance

Additionally, Standard Deduction of Rs. 50,000 is allowed (from FY 2023–24 onward).

TIn view of the above, tax planning isn't dead under the new regime it is just different. With strategic structuring and awareness, salaried assessees can still maximize their in-hand income.

In conclusion, we can say that “tax planning” is a year-round exercise, not just something you do in March. With a good mix of salary structuring, eligible investments, and smart use of deductions, salaried individuals can optimize their tax outgo and enhance savings for the future.