Facts to Keep in Mind While Tax Planning for FY 2022-23

How to save on tax in a particular year is the most frequent question inside the minds of a taxpayer. But, usually, people make last-minute preparations for meeting the requirement of section 80C or 80 CCD of the Income Tax Act,1961. The answer to such a question is making preplans on saving tax rather than last moment plans. In this blog, we will talk about a few facts to keep in mind while Tax Planning for FY 2022-23.

Facts to Keep in Mind While Tax Planning for FY 2022-23

The investments made during the last minute are unforeseen. Although these investments may give the return as supposed to, there is a good chance of getting the timing wrong. 

Poor financial planning and its implementation can ultimately in the end reduce the wealth. Following are the general points that need to be kept in mind while Tax Planning for FY 2022-23:  

• Start in April: The first thing to keep in mind while tax planning tax is it should start from the first month of the financial year in April. The taxpayers must do everything needed to save on tax for the year ending in March. One shall rework their systematic investments into tax and non-tax schemes. Further, invest a small amount every month in a tax-saving instrument as a replacement for doing it at the end of the financial year. However, the taxpayer needs to be clear from their accountant about the difference between tax avoidance and tax evasion. Tax evading is a criminal act. But, one can avoid tax up to a particular level as per the land laws.

• Plan of action: The taxpayer needs to sit with their advisor and define things they want to achieve from the annual plan. Tax planning for each month should be made. A plan of action will always save from losing a huge amount of money in tax.

• Tax and non-tax schemes: The taxpayer can also rework their systematic investments into tax and non-tax schemes.

How to Save Tax as per Sections of Income Tax Act, 1961?  

Following are some of the provisions of the Income Tax Act 1961, which help in tax saving:

• Section 80C: Under Section 80C one can find various options and ways to save on income tax. Following are some of them:
• Life Insurance: Life Insurance not only provide full life coverage, but it is also the best way to save on Taxes. Under this policy, one needs to pay a definite amount of money every year, and later in turn it is paid back in a healthy lump sum. Life insurance on the type of Endowment, ULIP, term life, or annuity is permissible for tax savings. As per section 80C the minimum eligible deduction is up to Rs.1,50,000.
• ELSS (Equity Linked Saving Scheme): One person can go for Equity Linked Saving Scheme (ELSS) in Mutual Funds, where one can get deductions up to Rs.1,50,000 according to section 80C. ELSS is an optimal gateway to equity as it is a combination of equity and tax saving. This means, that with the tax savings, taxpayers’ money grows as the stock market grows. Consequently, the gains are high in ELSS and it also has the lowest lock-in period of 3 years.
• Tax Saving Fixed Deposit: The tax-saving fixed deposits offer tax immunities on investments up to Rs.1,50,000 as per section 80C. The taxpayer can gain an attractive amount with good interest rates and the deposit comes with a lock of 5 years.
• Senior Citizens Savings Scheme (SCSS): This scheme is framed only for senior citizens. Senior citizens here mean citizens above 60 years of age or who have chosen for retirement at the age of 55 years. The maximum SCSS investment responsible for tax exemption is Rs.1,50,000 as per section 80c of the Act.
• Provident Fund: Provident Fund (PF) is serving to generate a goal with long term returns. According to section 80C, the deposits under PF are eligible to claim a tax deduction up to Rs.1,50,000.
• National Saving Certificates: A minimum deposit of Rs.100 starts for National Saving Certificates (NSC). The investment term of NSC is 5 years. One can claim the entire amount back to their account after maturity. On the other hand, if the amount isn’t claimed then the entire amount gets reinvested in the scheme. The tax deduction of Rs.1,50,00 can be claimed as per section 80C of the income tax act.
• Section 80D – Medical Insurance Premium: Section 80D of the Income Tax Act, 1961 benefits to claim deductions from the total taxable income from the payment of medical insurance premiums. A maximum deduction of Rs. 25,000 per year as per payment for medical purposes for self, spouse or children a person can avail. Further, the maximum tax deduction limit for senior citizens is Rs. 50,000.
• Section 80G – Charitable Donations: A person can claim 50% or 100% of the amount, which is donated to the charitable trust. One needs to preserve the Receipt of the organization after the financial year for claiming the deduction. it is important to check whether such charitable trust is registered under section 12A before donating the money.
• Section 80GG – Rent towards Accommodation: A person living in a rented house can claim deductions as per section 80GG of the Act. However, this tax deduction is appropriate for those who are not remunerated and also for those employees who don’t get House Rent Allowance (HRA) from their employers.
• Section 80D – Health Insurance: At present, medical care is increasing rapidly, and purchasing health insurance has become necessary for everyone. For example, if a person pays premiums for health insurance then they can save up to Rs. 15,000 – 20,000 according to section 80D.
• Section 80E – Education Loans: As per section 80E of the Act, payment of the interest on loans for higher education is tax-free for self, spouse and children. Further, a person can claim the deduction amount of interest except the principal amount.
• Section 80EE – Home Loans: In India, home loans can be said one of the best ways to save on tax.  As per the new rule, home loans help out in bringing down the taxable income. Under section 80EE of the income tax act, first time home buyers can claim a maximum deduction amount of Rs. 50,000 during a financial year. The benefit under this section is on, the interest paid on the Home Loan.
• Section 80TTA – Interest on Saving Accounts: As per section 80TTA of the act, a person can claim the interest earned by saving accounts as a deduction. However, the interest on a saving account above Rs. 10,000 will only be calculated as taxable income.

Conclusion

Thus, the above-mentioned points are the facts and provision which helps in saving tax. The investments made during the last minute are unforeseen. Although these investments may give the return as supposed to, there is a good chance of getting the timing wrong. So, preplanning for tax savings is very important.