Don’t get pinned down in the query “How to pay less tax?”. Instead, read this article until the end to learn the best ways to pay less taxes in FY 24. Also, we will work out how much you can save tax that doesn’t hamper your long-term goals.
Tax Brackets for FY24
The Finance Minister, Ms Nirmala Sitaraman, announced the Budget 2023 on 1st February 2023, making the “New Tax regime” the default option for taxpayers. This initiative is intended to simplify the existing tax structure with lower tax rates but fewer permissible deductions and exemptions.
Before we jump on to how to pay less tax, let us first discuss the two coexisting tax regimes- the Old Tax Regime and the New Tax Regime and which one you should opt for salary-wise.
|Net Annual Income Range||Old Tax Slabs||New Tax Slabs|
|Upto Rs. 2.50 Lacs||NIL||NIL|
|Rs. 2.5 lacs –Rs. 3 Lacs||5%||NIL|
|Rs. 3 Lacs – Rs.5 Lacs||5%||5%|
|Rs. 5 Lacs – Rs. 6 Lacs||20%||5%|
|Rs. 6 Lacs – Rs. 7.50 Lacs||20%||10%|
|Rs. 7.50 Lacs – Rs. 9 Lacs||20%||10%|
|Rs. 9 Lacs – Rs 10 Lacs||20%||15%|
|Rs. 10 Lacs – Rs. 12 Lacs||30%||15%|
|Rs. 12 lacs -. Rs.15 Lacs||30%||20%|
|Above 15 Lacs||30%||30%|
To figure out how to pay less tax, we must first decide which tax regime we prefer to choose to scale back our tax outgo. Then, to make an informed decision salary-wise, you must analyze the tax exemptions and deductions available in each tax regime.
|Permissible Exemptions and Deductions||Old Tax Regime||New Tax Regime|
|Standard Deduction||Rs. 50,000.||Rs. 50,000.|
|LTA (Leave Travel Allowance)||Yes||No|
|Exemption u/s 10(10 C) on Voluntary Retirement||Yes||Yes|
|Exemption on Gratuity||Yes||Yes|
|Exemption on Leave Encashment||Yes||Yes|
|Home Loan interest u/s 24b on self-occupied or vacant property||Yes||No|
|Home Loan interest u/s 24b on rented property||Yes||Yes|
|Deductions u/s 80 C||Yes||No|
|Self-contribution in NPS u/s 80 CCD(1B)||Yes||No|
|Self-contribution in NPS u/s 80 CCD (2)||Yes||Yes|
|Premium paid on Medical insurance u/s 80 D||Yes||No|
|Education Loan interest u/s 80E||Yes||No|
|Electric Vehicle Loan interest u/s 80 EEB||Yes||No|
|Saving Bank interest u/s 80 TTA and 80 TTB||Yes||No|
How to Pay Less Tax in FY24 in India?
When you understand the tax layers, deductions, and exemptions available, the next big question is, “How to Pay Less Tax?”. The most common ways include-
- Choosing the proper tax regime can make your tax-saving journey a breeze.
- Submitting your tax returns on time, as any delay in filing carries a hefty penalty,
- Broadening the scope of your allowable exemptions and deductions to minimize your net taxable income.
How to Pay Less Tax By Choosing the Right Tax Regime?
Individuals who have just begun earning and have made no tax-saving buys or investments will benefit the most from the new tax regime. Also, the new tax regime will be a better option if you do not have a housing loan to claim a rebate on your loan’s interest and principal.
Furthermore, you don’t have to worry about how to pay less tax can be eased through the new tax regime if your income is less than Rs. 7.5 Lacs, as there is no tax deduction in this income range. If you have only invested Rs. 1.5 Lacs in tax-saving schemes and have received an 80C rebate, the new tax regime will be a better deal.
Suppose you pay housing loan interest, rent, medical/life insurance premium, education loan interest, retirement fund contribution, and NPS contribution in addition to your employer’s contribution. In that case, you can stay in the Old Tax Regime. If you have more allowable deductions and exemptions to claim, your net taxable income and, thus, your tax burden will be lower under the old tax regime. Select the best tax regime for your income, and you won’t worry about how to pay less tax.
Salary-wise, How Much Tax Can You Save
Let’s take the case of Mr A, who earns Rs 12 lakh each year. The HRA deduction is Rs 35,000 per year. He makes use of the Section 80C limit of Rs. 1.5 lakh by combining EPF and ELSS mutual funds. He also bought health insurance for Rs 15,000 (self and spouse) and Rs 30,000 (senior citizen – parents), which he claims as a tax deduction under Section 80D. He also put an extra Rs 20,000 into NPS to save even more taxes on his earnings.
|Items||Old Tax Regime (Rs.)||New Tax Regime (Rs.)|
|Less: Standard Deduction||50,000||50,000|
|Less: Section 80C (EPF +LIC+ Tuition Fees, etc)||1,50,000||NA|
|Less: House Rent Allowance||35,000||NA|
|Less: Health Insurance- self and spouse- parents (if senior citizen)||45,000||NA|
|Less: New Pension Scheme 80CCD (1B)||20,000||NA|
|Total (Deduction & Exemption)||3,00,000||NA|
|Net Taxable Income (Annual Income – Total deductions & exemptions)||9,00,000||11,50,000|
To understand salary wise how much tax can you save, read our earlier blog New Income Tax Slabs For FY24: How To Navigate?
How to Pay Less Tax by Filing Returns On Time?
Late filing of your income tax returns can attract heavy penalties u/s 234F of the IT Act. Don’t waste time figuring out how to pay less tax so that you miss the return filing deadline. Furthermore, to relieve small taxpayers with annual incomes less than Rs. 5 lacs, the government has reduced the maximum penalty for late ITR filing to Rs. 1000/-
Another reason to take quick action rather than obsessing over how to pay less taxes is the shorter time frame for revising your income tax return. Previously, taxpayers had a two-year window to revise and resubmit their ITRs post-correction. However, this has now been reduced to one year. So, the earlier you file, the more time you have to revise or correct your ITR.
How To Pay Less Tax by Choosing the Right Tax-Saving Investments?
If you’re having trouble deciding on the best investment vehicle for your tax-saving needs, fret not. We’ve compiled a comprehensive tax-saving guide on the top three most preferred investments to help you find the answer to how to pay less tax.
Public Provident Fund (PPF)
PPF is a small saving, government-backed investment scheme that offers a guaranteed return and tax breaks on investments up to Rs. 1.5 Lacs. PPF is a 15-year investment, with the government revising interest rates quarterly. As a result, the public Provident Fund is one of the most catching on tax-advantage investment vehicles for risk-averse investors seeking to play it safe amid market volatility.
If you are looking for how to pay less tax using tax-saving investing tools, PPF is the most preferred choice, as you get:
- Tax benefit of 80C on the principal invested up to Rs. 1.5 Lacs
- Tax-free interest
- The maturity proceeds are exempted from Wealth Tax or any Capital gains.
Equity-Linked Savings Scheme (ELSS)
ELSS is an effective answer to how to pay less tax if you want to save taxes while investing in your long-term financial goals. Some of the benefits of investing in ELSS are-
- Having the shortest Lock-in Period (i.e., 3 years) among all tax-saving investment options
- Helps reduce risk through portfolio diversification across market capitalization (Large Cap, Mid Cap, and Small Cap) and industry sectors.
- Offers better returns than traditional instruments like PPF, NSC, or Tax-Saver FDs
If you invest in the ELSS scheme, you can claim an exemption of up to Rs. 1.50 Lacs in a financial year. However, given that the units cannot be redeemed before three years, only a Long-Term Capital Gains Tax (LTCG) of 10% on gains exceeding one lakh rupees will be imposed.
If an investor made a capital gain of Rs. 1.2 lacs on investment in this scheme during redemption, an LTCG of 10% would be levied on the first Rs. 20,000 in the year of redemption. Capital gains of up to one lakh rupees are free from taxation. The tax due would be Rs. 2,000.
No more wondering how to pay less tax; choose an ELSS that provides consistent returns to gain capital appreciation by sweetening tax savings.
National Pension Scheme (NPS)
With its built-in flexibility to switch between debt and equity while offering an additional tax deduction of up to Rs. 50,000, NPS stands as a promising resolution to your concerns about how to pay less tax. Unlike life insurance policies, the best part is that you can easily change your pension fund manager, and switching between debt and equity has no tax impacts. The only drawback is the lengthy investment tenure or lock-in.
In the face of growing investor concerns about rising inflation, sluggish demand, and high market volatility, NPS can protect your returns to a large extent. Because inflation is inversely proportional to bond yields, you can invest in Bonds if market volatility persists. When markets stabilize, you can easily reclaim your equity position at no additional cost (free up to four times a year).
Wrapping it Up!
If you are on the hunt for how to pay less tax, start tax planning as soon as possible to avoid the last-minute rush and distress investing decisions. But, on the other hand, don’t wait until the last minute, hoping for a wishing wand to manage your tax planning.
First, decide on the best tax regime for your income. After that, go deeper into selecting investment vehicles that will maximize your exemptions and deductions, allowing you to reduce your net taxable income. Working out “How to Pay Less Taxes” is as simple as that. I hope this article guided you in locating your answer.
How to pay less tax and earn good returns?
If you want to invest in traditional investment options that yield 7.1 – 8% returns, you can invest smartly in PPF, Sukanya Samriddhi Yojna, SCSS, and NSC. Depending on your investment horizon, you can choose between the ELSS Scheme and the NPS for higher returns.
How to pay less tax if I have an account with Post Office only?
You can still save tax if you only have a Post Office account. You can easily opt for small saving tax-saving schemes offering decent returns like NSC, PPF, Post Office 5-year term deposit, etc.