Are you just starting your first job or planning to file your first income tax return but are unsure how to go about doing so? You won’t be alone! The start of a new fiscal year in April provides an opportunity to make better financial and tax planning decisions.
I see some of my friends annually searching for tax-saving strategies, which are simple to eliminate.
What differences exist between the new and old tax systems?
Before choosing which regime to file your returns under in 2023, it is essential to comprehend the differences between the two.
Because there are more slabs and lower taxes, it is not applicable to all of the usual income tax exemptions found in the old regime, which is oddly now referred to as the old regime. You can’t change a regime for the current fiscal year once you choose it. Therefore, before making a decision, it is always recommended to use an online calculator to compare the two regimes.
What’s the best course of action given all of this?
I calculated my net taxable income when I made this decision two years ago. The best option is entirely dependent on your yearly gross income and the tax-saving strategies you employ. To qualify for Section 80C deductions (LIC, PF, ELSS, NPSs, etc.), my gross income was taken into account, along with the standard deduction of Rs.50,000 and exemptions like HRAs, LTAs, and voluntary investments and Section 80D deductions for things like medical insurance, critical illness insurance, and so forth were taken out.
I then carried out yet another round of calculations employing the brand-new tax regime’s slabs, which do not allow for deductions. If you don’t like doing calculations by hand, there are a lot of free online calculators that can help you make your choice. You ought to have a clear understanding of your tax obligation in both scenarios.
My Sec. 80C deductions are maximized (limit is 1.5 lakh) for me. In addition, I make deductions for my HRA within the permitted limits. Assuming I changed to the new expense system, I would miss out on these derivations, which would build my available pay and net duty. As a result, I’ve stuck with the old system.
One make their tax calculations easier and hassle free by using an easy tax calculator.
Why do some people pay their taxes early?
You will be required to pay advance tax if you receive additional income in addition to your regular salary and your tax obligation is greater than Rs.10,000.Property rental income, interest from a savings account or fixed deposit, capital gains from the sale of a mutual fund, etc.
- The calculation is simple because there are no external factors involved. Make an estimate of your annual non-salary earnings.
- Your gross salary will be calculated by adding the year’s total income to your gross salary.
- Work out the expense payable in view of the personal assessment sections for the old or new system (whichever you picked).
- Under the old system, salaried employees’ TDS and other income tax deductions should be deducted.
- When your additional income is greater than Rs. 10K, you are required to pay advance tax, which must be paid in full by March 15 of each year. You will incur a penalty of one percent per month if you do not pay the amount.
- On the Income Tax website, making an advance payment is a breeze. You can avoid late fees and penalties and save money by doing this.
Tips for planning and saving taxes If I want to save taxes, it makes more sense for me to keep the old system. I am able to maximize the following deductions as a result:
- Section 80C deductions, up to a maximum of 1.5 L, for the house rent I pay, including premiums for life insurance, ULIPS, ELSS, PF, ELSS, etc.
- Under Section 80CCD, a voluntary NPS contribution of up to Rs.50K is deductible. Seniors can deduct an additional Rs.50K from their income based on Section 80D deductions.
Planning your taxes is not difficult. Research the various tax-saving options available to you and carefully examine your income. Take into consideration your preferred investment horizon and risk tolerance. Don’t let tax-saving concerns keep you from achieving your long-term and short-term objectives by locking away a significant portion of your income.