How Salaried Employees Can Maximize Tax Savings While Filing ITR for FY 2024-25
Rajesh Kumar Kar- 2 days ago
- 10 min read
Maximizing tax savings while filing Income Tax Returns (ITR) for salaried employees in India requires strategic planning and an in-depth understanding of available deductions and exemptions. The Income Tax laws for the Financial Year (FY) 2024-25 have brought several updates that can significantly impact salaried individuals. By making informed choices, such as selecting the right tax regime and optimizing the use of deductions, salaried employees can effectively reduce their tax liability.
Table of Contents
How Salaried Employees Can Maximize Tax Savings While Filing ITR?
Salaried employees can maximize their tax savings while filing ITR for FY 2024-25 by strategically selecting the right tax regime, either the old regime with exemptions like HRA and deductions under 80C or the new regime with lower tax rates but fewer deductions. Fully utilizing Section 80C (up to Rs 1.5 lakh) through investments in PPF, EPF, and ELSS, along with additional deductions under Sections 80D, 80CCD(1B), and 80E, can significantly reduce taxable income. Additionally, taking advantage of the standard deduction of Rs 75,000 and rebates like Section 87A for incomes up to Rs 7 lakh can offer substantial savings. Reporting capital gains and other income accurately, using the correct ITR form based on income sources, and planning investments and expenses ahead of time can further help in minimizing tax liability for the financial year.
Choose the Right Tax Regime: Old vs New
Choosing the appropriate tax regime is crucial to maximizing tax savings for salaried employees. The Indian tax system offers two options for taxpayers: the old tax regime and the new tax regime.
Old Tax Regime: The old tax regime allows several exemptions and deductions that can help reduce taxable income. Key deductions include House Rent Allowance (HRA), Leave Travel Allowance (LTA), and various deductions under sections like 80C, 80D, 80CCD, among others. It is ideal for individuals who have significant exemptions and deductions to claim.
New Tax Regime: The new tax regime provides lower tax rates but removes most exemptions and deductions, except for a few like employer contributions to the NPS and the standard deduction. The new regime has been designed to benefit individuals who do not have many tax-saving opportunities through exemptions or deductions. The key update for FY 2024-25 includes a revision of income tax slabs to provide relief, such as a tax-free income limit of Rs 3 lakh, and the highest slab beginning at Rs 15 lakh with a 30% tax rate.
Key Update for FY 2024-25:
Standard deduction remains at Rs 75,000 under the new regime (no change in Budget 2025).
The employer’s contribution to NPS has increased to 14% of salary from 10%.
Income tax slabs have been revised, with tax-free income up to Rs 3 lakh and the highest tax slab applicable from Rs 15 lakh onwards.
Utilize Section 80C Deductions Fully (Up to Rs 1.5 Lakh)
Section 80C is one of the most widely used sections for tax-saving, and salaried employees can claim deductions up to Rs 1.5 lakh by investing in specific instruments. Commonly used tax-saving options under Section 80C include:
Public Provident Fund (PPF)
Employee Provident Fund (EPF)
Equity Linked Savings Schemes (ELSS)
Life Insurance Premiums
Principal Repayment of Home Loan
National Savings Certificate (NSC)
Sukanya Samriddhi Yojana (SSY)
5-year Fixed Deposits with Banks
Maximizing investments in these instruments not only helps reduce taxable income but also encourages disciplined savings and investments. By fully utilizing the Rs 1.5 lakh limit under Section 80C, salaried employees can significantly lower their tax liability.
Leverage Additional Deductions Beyond 80C
Apart from the 80C limit, there are additional deductions that salaried employees can claim to further reduce their taxable income:
Section 80CCD(1B): This section allows an additional deduction of Rs 50,000 for contributions to the National Pension Scheme (NPS) beyond the Rs 1.5 lakh limit of 80C. This is a beneficial option for those planning for retirement, as it provides both tax benefits and long-term financial security.
Section 80D: This deduction is available for premiums paid on health insurance for self, family, and parents. For self and family, the maximum deduction is Rs 25,000. If the parents are senior citizens, the deduction increases to Rs 50,000.
Section 80E: If you have taken an education loan, you can claim a deduction on the interest paid under this section. The best part is that this deduction has no upper limit, making it a great option for individuals paying significant interest on education loans.
Section 24(b): Under this section, salaried employees can claim a deduction of up to Rs 2 lakh on home loan interest for self-occupied property, helping reduce the tax burden for those with home loans.
Standard Deduction: Salaried individuals and pensioners are eligible for a flat deduction of Rs 75,000 under the standard deduction provision, which directly reduces taxable income.
Understand the Applicability of ITR Forms
Selecting the correct ITR form is essential for ensuring accurate tax filing. The choice of ITR form depends on the sources of income and the total income of the taxpayer:
ITR-1 (Sahaj): This form is applicable for salaried individuals earning up to Rs 50 lakh, who have income from salary, one house property, and other sources, excluding capital gains.
ITR-2: This form is for salaried individuals earning above Rs 50 lakh or individuals who have income from capital gains, multiple house properties, or share buyback transactions.
ITR-3 and ITR-4: These forms are for individuals who have business or professional income or freelancing income, in addition to their salary income.
Choosing the right form ensures that all income and deductions are reported correctly, avoiding errors and penalties.
Report Capital Gains and Other Income Correctly
For FY 2024-25, the ITR forms have been updated to reflect changes in the treatment of capital gains. Taxpayers need to report capital gains separately for transactions that took place before and after 23 July 2024 due to changes introduced in the Finance Act 2024.
Long-Term Capital Gains (LTCG): Under Section 112A, LTCG up to Rs 1.25 lakh is exempt from tax. However, this must still be reported in the ITR, especially if it is claimed under the exemption.
Ensuring that all capital gains and other forms of income, such as interest or dividends, are accurately reported is essential to prevent errors in the ITR and to avoid any future tax liabilities.
Use Tax Rebates and Reliefs
Section 87A Rebate: This section offers a full tax rebate for individuals with taxable income up to Rs 7 lakh under the new tax regime. This rebate effectively reduces the tax liability to zero for individuals falling under this income threshold.
Family Pension Standard Deduction: The standard deduction for family pension income has increased from Rs 15,000 to Rs 25,000, as per the Budget 2024 updates. This provides additional relief for those receiving family pensions.
These rebates and reliefs should be considered when filing the ITR to reduce taxable income further and optimize tax savings.
Plan Investments and Expenses Before Filing
Proper planning of investments and expenses throughout the financial year is essential to maximize tax-saving opportunities. Making timely investments in eligible tax-saving instruments like PPF, EPF, or ELSS can help employees claim deductions under Section 80C, 80D, etc. It is important to submit proof of these investments to the employer before the end of the financial year to adjust tax deductions at source (TDS). Additionally, employees should consider making advance tax payments if they expect their tax liability to exceed Rs 10,000 to avoid interest penalties.
Consider Carry Forward of Losses
If salaried employees incur capital losses in a particular financial year, they can carry forward these losses for up to eight years to offset future capital gains. This is a valuable opportunity to reduce tax liability in the future, particularly for those who are likely to have capital gains in the coming years.
Summary Table of Key Tax Saving Options for Salaried Employees (FY 2024-25)
Tax Saving Option | Section | Max Deduction / Benefit | Notes |
Standard Deduction | N/A | Rs 75,000 | Flat deduction for salary/pension |
Investments under 80C | 80C | Rs 1,50,000 | Includes PPF, ELSS, life insurance etc. |
Additional NPS Contribution | 80CCD(1B) | Rs 50,000 | Over and above 80C limit |
Health Insurance Premiums | 80D | Rs 25,000 (self/family) + Rs 50,000 (senior parents) | |
Interest on Home Loan | 24(b) | Rs 2,00,000 | For self-occupied property |
Education Loan Interest | 80E | No limit | For interest paid on education loan |
Capital Gains Reporting | Section 112A | Exemption up to Rs 1.25 lakh LTCG | Must be reported in ITR |
Tax Rebate | 87A | Tax rebate for income ≤ Rs 7 lakh | Applies in new tax regime |
By understanding these deductions, rebates, and exemptions, and using the correct ITR form, salaried employees can make well-informed decisions to maximize their tax savings while filing ITR for FY 2024-25. Proper planning, timely investments, and careful reporting will ensure that employees make the most of the available tax-saving opportunities.
Conclusion
Maximizing tax savings while filing ITR for FY 2024-25 requires a strategic approach and careful planning. By choosing the right tax regime, whether the old regime with deductions or the new regime with lower tax rates, salaried employees can tailor their tax filing to suit their financial situation. Utilizing key deductions under Sections 80C, 80D, 80CCD, and others, along with taking advantage of tax rebates and reliefs, can significantly lower taxable income. Proper reporting of capital gains and other sources of income is crucial for accurate filing. To make the process seamless and error-free, utilizing tools like TaxBuddy can simplify your tax filing journey. TaxBuddy’s user-friendly platform and expert support ensure that all deductions, exemptions, and tax-saving opportunities are fully leveraged, making tax filing efficient and hassle-free.
FAQs
Q1: Can I switch between the old and new tax regime every year?
Yes, salaried employees have the option to switch between the old and new tax regimes every financial year. However, once the choice is made and ITR is filed for that year, you cannot change it for that same year. The choice must be made before the due date for filing the ITR, and it is important to assess which regime benefits you the most based on your deductions and exemptions.
Q2: What are the most common tax-saving investments for salaried employees?
Salaried employees can benefit from several tax-saving investments, including contributions to the Public Provident Fund (PPF), Employee Provident Fund (EPF), Equity Linked Savings Schemes (ELSS), Life Insurance Premiums, and National Savings Certificates (NSC). Additionally, 5-year Fixed Deposits, Sukanya Samriddhi Yojana (SSY), and the principal repayment of home loans also fall under the purview of Section 80C, providing deductions up to Rs 1.5 lakh.
Q3: How do I claim the standard deduction under the new tax regime?
The standard deduction of Rs 75,000 is available to salaried individuals and pensioners under both the old and new tax regimes. Under the new tax regime, you don’t need to provide proof of expenses or show additional deductions. This is automatically available in the calculation of taxable income, making it a hassle-free benefit.
Q4: Are there any changes in capital gains tax for salaried employees?
Yes, there are changes in how capital gains are treated for salaried employees. For FY 2024-25, long-term capital gains (LTCG) on the sale of listed shares and equity-oriented mutual funds are exempt up to Rs 1.25 lakh. However, it must be reported in the ITR under Section 112A. Additionally, the ITR forms have been updated to separately report capital gains before and after 23 July 2024, in line with recent changes in tax laws.
Q5: Can I claim both NPS deductions under 80C and 80CCD(1B)?
Yes, you can claim both deductions for NPS contributions. Under Section 80C, you can contribute to NPS and claim up to Rs 1.5 lakh. Additionally, under Section 80CCD(1B), you can claim an extra Rs 50,000 for your contribution to NPS, beyond the Rs 1.5 lakh limit of Section 80C. This gives you a total of Rs 2 lakh in potential tax savings for NPS contributions.
Q6: What happens if I don’t use the full Rs 1.5 lakh under Section 80C?
If you don’t fully use the Rs 1.5 lakh limit under Section 80C, you won’t be able to carry forward the unused amount to the next financial year. However, it’s important to note that you can choose to invest in additional tax-saving instruments in subsequent years, ensuring you maximize your 80C benefits in the future.
Q7: How do I file ITR if my income exceeds Rs 50 lakh?
If your income exceeds Rs 50 lakh, you need to file ITR-2, as this form is designed for individuals with higher income levels or those having capital gains, multiple house properties, or income from sources like share buybacks. It’s important to ensure that all income, deductions, and exemptions are reported accurately to avoid penalties.
Q8: Is it possible to carry forward losses in the new tax regime?
Yes, you can carry forward losses in the new tax regime. For example, if you have capital losses, they can be carried forward for up to eight years to set off against future capital gains. This helps reduce tax liability in future years, particularly if you have gains from the sale of assets.
Q9: What is the deadline for submitting tax-saving investment proofs to my employer?
The deadline for submitting proofs of tax-saving investments to your employer is usually in December or January. However, it’s best to check with your employer as these dates may vary depending on the organization. Timely submission ensures that the tax deductions are applied to your salary, reducing TDS.
Q10: How can I maximize my health insurance deduction under Section 80D?
To maximize your health insurance deduction under Section 80D, ensure you purchase policies for yourself, your family, and your parents. You can claim up to Rs 25,000 for health insurance premiums for yourself and your family, and Rs 50,000 if your parents are senior citizens. Ensure that you pay the premiums before the end of the financial year and submit proof to your employer for TDS adjustments.
Q11: What is the new income tax slab for the FY 2024-25 under the new regime?
Under the new tax regime for FY 2024-25, the income tax slabs are as follows:
Up to Rs 3 lakh: Nil
Rs 3 lakh to Rs 6 lakh: 5%
Rs 6 lakh to Rs 9 lakh: 10%
Rs 9 lakh to Rs 12 lakh: 15%
Rs 12 lakh to Rs 15 lakh: 20%
Above Rs 15 lakh: 30%
These revised slabs offer more relief to taxpayers, especially those with income below Rs 3 lakh, who are now exempt from tax.
Q12: Can I avail tax savings if I am a senior citizen?
Yes, senior citizens enjoy additional tax-saving benefits. For example, the deduction under Section 80D for health insurance premiums increases to Rs 50,000 for senior citizens. Additionally, the deduction for family pension income has been increased from Rs 15,000 to Rs 25,000. These benefits, combined with the higher exemption limit in the new tax regime, provide seniors with significant tax relief.
Q13: How can TaxBuddy help me maximize my tax savings while filing ITR?
TaxBuddy is an excellent platform for salaried employees looking to maximize their tax savings. It provides personalized guidance to help you navigate through the complexities of tax filing. Whether you're choosing between the old and new tax regimes, maximizing your Section 80C and NPS deductions, or ensuring accurate reporting of capital gains, TaxBuddy’s intuitive platform makes the process seamless. The platform keeps track of all your investments and deductions, so you can make sure you're fully utilizing available tax-saving opportunities. With its user-friendly interface and expert support, TaxBuddy streamlines your ITR filing experience, ensuring you take full advantage of every tax-saving strategy.
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