Income Tax for Salaried Individuals in 2024
As an Indian salaried individual, it is imperative to learn about the complexity of the income tax to manage your budget correctly. It will help you establish your ability to navigate the system and ensure that you save on your final payable tax. Income tax is often a massive cause of financial drain to salaried individuals because the income tax slab makes an individual pay the tax on the attainable earnings they made within a year.
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Although it may appear despicable for an average-earning individual, the income tax slab can be easily navigated to ensure substantial savings. This can be done by understanding the tax slab provisions and the types of deductions and exemptions one can claim in a single financial year. This will be instrumental for the average earning individual trying to live their financial aspiration.
Understanding the Salary Components
Understanding the composition of your salary goes a long way in determining your liability for income tax as a salaried individual. The total consideration comprises a few salient components, each with a distinct tax implication. The core of the salary is the basic salary, which forms the platform for calculating taxable income. However, it is essential to note that this is the only aspect of total consideration subject to income tax.
Another critical component of the total salary is the housing rent allowance. HRA is exempt from taxes and provides employees with allowances based on rental expenses. HRA allowance is calculated based on the city of residence and actual rent.
Aside from basic salary and HRA, salaried employees might be eligible for additional special allowances, such as dearness allowance, conveyance allowance, and professional development allowance. The nature of these allowances and their taxes depends on particular circumstances.
Knowing the composition of one’s salary and corresponding tax implications is crucial for effective tax planning and saving decision-making.
New vs. Old Tax Regime: Which is More Beneficial?
In 2024, the Indian government proposed a new tax regime offering an alternative for salaried people in addition to the existing one.
Comparing Tax Rates: The first point of tax comparison is rate. The new tax regime has a lower general tax rate with a maximum rate of 30%, charged for income over ₹15 lakhs. In contrast, the previous tax regime continues the conventional rate division into more income. This way, the new government better forms relationships for people with a lower taxable income rate.
Deductions and Exemptions: The new tax regime sways from the old scheme in the number of deductions and exemptions, which may be less beneficial regarding total taxes for people with multiple investments. On the contrary, the old regime had more deductions and exemptions, which may favour professionals with high incomes who invest in several suppliers.
Taxpayer category: No less important is the division of the homeowner’s category by the two types of tax. The new tax regime will benefit people with low taxes; the old regime will help those who pay high taxes and complicated planning tasks.
Decision-Making: The answer depends on your annual taxable income, the number of policies you plan to use to invest in your future, and the discounts and exemption forms you can use.
The New Regime is More Beneficial: In sum, the new regime with lower tax rates is better for professionals with low-income exposure to taxation. The old tax regime, which had a more significant number of tax opportunities, was better for individuals with several high-taxing investments.
Thus, people should reflect on their financial status and total taxes to choose an optimal regime for taxation savings. Before diving into the next topic, let's consider how to select a default tax regime.
How to Choose a Default Tax Regime
Since salaried people have two regime choices to pay their income tax, the old regime, and the new regime, opting for a default tax regime should be done based on the evaluation of the following essential factors:
Evaluation of your taxable income: The first and most critical factor for tax planning is the evaluation of your total taxable income. If your total taxable income is low, then the new tax regime tax rates are lower than the old tax regime; therefore, choosing the new tax regime will be helpful. If your taxable income is high, then the old regime tax deductions and allowances will be beneficial.
Analysis of your Deductions and Allowances: The second and the most critical evaluation is the availability of deductions and their applications. If you have many investments that provide tax socks and tax savings in old tax regimes and benefit from tax socking provisions of the old regime with their more comprehensive range of deductions, you should opt for the old regime. If your deductions are low and you do not like to use their extensions, then less complicated factors of the new government are beneficial.
Consider your short and long-term financial goals: The new income tax policies also include tax method provisions for funds like children's funds, national pension systems, retirement, and support funds.
Comprehensive Guide to Tax Slabs for Salaried Individuals
As a salaried individual, understanding the applicable income tax rates and slabs is crucial for accurate tax planning and management. Under the new tax regime introduced in 2024, the income tax slabs and corresponding rates are structured as follows:
Up to ₹ 3,00,000: Nil
₹ 3,00,001 to ₹ 6,00,000: 5%
₹ 6,00,001 to ₹ 9,00,000: 10%
₹ 9,00,001 to ₹ 12,00,000: 15%
₹ 12,00,001 to ₹ 15,00,000: 20%
Above ₹ 15,00,000: 30%
The new tax regime is one that taxpayers can use after this notification and has a more straightforward income tax structure with lower overall tax rates. However, certain deductions and certain exemptions are restricted under this regime. Hence, when choosing the current tax regime, a salaried individual should be aware of this to make an informed and appropriate decision. However, the old tax system is more complicated, with a slightly higher tax rate for individual income slabs. However, the old tax regime allowed a broader spectrum of deductions and exemptions. After adequately assessing their taxable income, the deductions and exemptions they qualify for, and their ensuing net taxable income, they should select the tax regime carefully in the proper version suitable. A salaried taxpayer with a comprehensive understanding of the current and old tax rates and tax slabs can prepare a fitting strategy.
Maximising Tax Savings: Deductions and Exemptions
You can reduce your salary income with exemptions and deductions available under the Income Tax Act. These tax-saving provisions allow you to keep more amounts of your well-earned salary.
Deductions available under Section 80C: These are popular. As per this section, you get a deduction of up to ₹1.5 lakhs regarding your contribution to tax savings schemes, life insurance premiums, employees’ provident fund contributions, and specific mutual fund schemes. Investing a part of your salary in these schemes lowers the taxable salary. As a result, you will become eligible for a sizable corollary deduction.
Health Insurance Deductions: Another such deduction is where you get to pay health insurance policies for you, your spouse, and your children under Section 80 D. The claim depends on your age and the premium payment lying at ₹25,000 or ₹ 50,000 in case of senior citizen, your taxable incomes reduces significantly for this amount.
Exemptions: Apart from deductions, salaried employees can also avail of various tax exemptions. The primary exemption is the house rent allowance. With the HRA exemption, one can claim a part of the house rent paid by the employee for living in the city where employed as a tax-free allowance. The exemption amount under HRA depends on the city where the salaried employee resides and the rent paid in the previous year. Another exemption is the leave travel allowance.
With LTA, the employee can claim reimbursement for the prescribed travel to any place in India that the recipient undertakes for himself and his family. This exemption is given subject to specific terms and conditions.
Maximising tax savings: Employees can significantly reduce taxation by exploring the appropriate sections and exemptions. Consequently, employees can harness and preserve more of their income and meet their financial requirements and aspirations. Yet, salaried employees must remain aware of frequent changes in tax rules and consult relevant individuals whenever required.
Investment Options for Tax Saving
When we look at tax planning, a range of options should be considered to save on taxes and secure its future.
One such option is the Equity Linked Savings Scheme- ELSS, which allows tax exemption under section 80C and the compounding benefit of higher return.
Another option is the Public Provident Funds PPF, which provides a predefined return at a fixed interest rate and complete tax rebates on maturity.
The third option could be the National Pension System NPS, which includes deduction rights on your deposited amount and a pension amount post your retirement.
Apart from the above-highlighted investment and savings options, several other options, such as Life insurance policies, fixed deposits, and real estate, can also be taken from a taxation perspective. It is vital to gauge the benefits and yield per the investors’ goal, risk factor, and investment tenure. Hence, in that way, the liability is reduced, the economy is used appropriately, and the future is secured accordingly.
Applicable ITR Forms for Salaried Individuals
As a salaried individual, it is essential to understand and be aware of The relevant ITR forms and the filing process. Generally, the most common ITR form salaried individuals use is the ITR-1 or the “Sahaj” form. It is prepared for people with income from salaries, a single house property, other sources such as interest, and agricultural income of Rs 5000. It is a simple form to fill in and can similarly be e-filed online through the Income Tax website or other authorized e-filing intermediaries. However, depending on an individual’s income sources and other financial considerations, salaried individuals may use other forms. For instance, if an individual has income from more than one house property, the ITR-2 form has to be filed.
Similarly, if one has capital gains, business or professional income, or foreign assets and income, one has to file an ITR-2 or an ITR-3, respectively. Therefore, It is vital to remember that the form submission and filing process can vary based on an individual’s circumstances. Salaried individuals are advised to critically assess their income statements and choose the correct ITR form to facilitate accurate and timely tax filing. To simplify this process, they can use the Income Tax Department’s e-filing portal, which offers a guided process from start to finish. Moreover, an individual with complex financial circumstances or a first-time filer should seek help from a tax professional.
Common Mistakes to Avoid in Tax Planning
Salaried individuals must understand common tax planning mistakes to maximise their savings while avoiding expensive mishaps. Below are a few of them that one should keep away from:
Some taxpayers must maximise all deductions they are due to—for instance, tax deductions on mortgage interest, charitable donations, or medical costs. Overlooking recognised tax deductions may result in overpayments on your total tax assessment.
Some individuals need more mastery in these brackets to make better decisions. The misconception is that once you’ve earned a little more than your current salary, you will fall into the next bracket and pay a higher tax rate on your current salary. The subsequent tax rate upsurge is confined to the additional income, not the entire income.
Tax obligations are attached to significant life changes such as marriage, divorce, and childbirth. Failure to tap into these adjustments in your tax planning will attract an unanticipated tax liability. By avoiding the above common mistakes, salaries can achieve a more integrated and efficient tax planning strategy and, eventually, greater financial security and savings.
Conclusion
Salaried individuals can address their income tax implications, tax slabs, deductions, and exemptions to make smart tax decisions and achieve optimal tax planning. Potential long-term financial gains are obtainable with disciplined tax planning and using the options within the available benefits. Therefore, salaried individuals should analyse their tax implications regularly, consider all tax law changes, and consider professional assistance when needed to obtain the maximum possibilities.
FAQs
Q1. What are the income tax slabs for salaried individuals in 2024?
For the financial year 2023-24, the income tax slabs for salaried individuals in India are as follows:
Up to ₹ 3,00,000: Nil
₹ 3,00,001 to ₹ 6,00,000: 5%
₹ 6,00,001 to ₹ 9,00,000: 10%
₹ 9,00,001 to ₹ 12,00,000: 15%
₹ 12,00,001 to ₹ 15,00,000: 20%
Above ₹ 15,00,000: 30%
Q2. How can I choose between the new and old tax regime?
Salaried individuals can select between the new and old systems while filing income tax. Factors such as their overall taxable incomes, deductions, exemptions, and long-term investment plans should be analyzed thoroughly while making this decision. Lower taxable income individuals can benefit from the new system, while the greater taxable income ones with multiple tax-saving investments can benefit from the old regime.
Q3. What deductions are available for salaried individuals under the Income Tax Act?
Salaried individuals can file income tax returns based on deductions under section 80C of the Income Tax Act, including investments in Public Provident Funds, Employees Provident Funds, National Savings Certificates, etc.
Q4. How can salaried employees file their income tax returns online?
Salaried persons may do income tax e-filing by registering on the income tax portal. They should pick the appropriate ITR form, like an ITR-1 for regular income or an ITR-2 form with multiple sources of revenue. Subsequently, they enter the necessary information electronically, fill in, and submit the papers.
Q5. What are some common tax planning mistakes that salaried individuals should avoid?
There are some common mistakes and errors to prevent; as mentioned, they include the following:
Not claiming all the deductions and exemptions that a person is entitled to.
Miscalculation of the taxable income by ignoring HRA and various other special allowances.
Not meeting the deadline date for filing the income tax return.
Incorrect calculation of the tax liability and repeated improper non-payment of advance taxes.
The income tax department has not updated the personal information and PAN details.
Q6. Can I claim HRA if I'm living in my own house?
No, the house rent allowance exemption is only for salaried persons, the employees paying for their accommodation. If you are living in a self-house, you cannot take the HRA exemption.
Q7. What is Section 80C, and how does it benefit salaried employees?
There are many tax-saving instruments in which deductions stand available for salaried individuals under Section 80C of the Income Tax Act, such as life insurance premiums, provident funds, and particular mutual fund schemes. The deduction can be a maximum of ₹1.5 lakhs per financial year to facilitate salaried employees to reduce their net tax.
Q8. How does the health insurance premium affect my tax savings?
The premiums paid for taking health insurance policies for your spouse and dependent children in your name also qualify as deductions under Section 80D of the Income Tax Act. The limit for saving on your tax outgo as a salaried person is ₹25,000 and ₹50,000 for senior citizens in a single financial year.
Q9. What is the standard deduction for salaried individuals in 2024?
The standard deduction for salaried individuals is ₹50,000 in 2024. The deduction is available to all salaried taxpayers, irrespective of his/her income, and is aimed at providing some relief from their overall tax liability.
Q10. Are there any tax benefits for salaried individuals' investments in the National Pension System (NPS)?
A taxpayer can also claim a tax deduction on investment made by him as an individual under the National pension system. Section 80CCD of the Income Tax Act, 1961, allows a deduction of 10 percentage points of an individual’s basic wage and dearness pay. If an individual employee who earns a wage is permitted for NPS, ₹50,000 can be decreased. In this case, according to section 80CCD, the above provisions are disregarded.
