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Complete Guide on Income Tax Saving for Working Professionals for 2023
Tax planning is essential for everyone, including working professionals. As we approach 2023, now is a good time to make a proper plan for tax savings in the coming year. To make things easier for you, we emailed some tax and legal professionals to find out the six most important things working professionals should do to save taxes in 2023. If you are a working professional, one of the most important things to learn is tax planning so that you can spend your money wisely. As we approach the New Year 2023, it is imperative that we make it a priority to learn about Tax Planning and Income Tax Saving. To assist you in this regard, I have written this article in which I will share six important tips on Income Tax Saving so that you can ease yourself into the process. Let's take a look:
1. Keep Your Knowledge Updated
Because we live in the information age, it is critical for everyone to stay current. Fortunately, all of the information needed to save money on taxes is available for free on the Income Tax website.
For taxpayers, the government has launched a very user-friendly website. Working professionals should visit and read the FAQs and guides available on the Income Tax website on a regular basis. They are simple to understand and will help you become a more responsible and wise taxpayer. Subscribe to tax and investment blogs.
2. Make the Correct Investment to Reduce Taxes
Professionals should make the appropriate investments under the right heads in order to be able to utilise tax breaks offered by the law. Equity-linked savings plans are excellent examples of investments that provide taxpayers with tax benefits
The total amount of exemption available through Section 80C investments cannot exceed Rs 1,50,000. By incorporating NPS investments (Section 80CCD), an additional Rs 50,000 deduction can be claimed, bringing the total deduction to Rs 2 lakhs.
Some Tax-Saving investment opportunities
Public Provident Fund (PPF): This savings scheme is available at most banks and post offices in India for a period of 15 years at a tax-free interest rate of 7.10%, which changes quarterly.
Employee's Provident Fund (EPF): Contributions of 12% of salary to the EPF scheme are counted toward the Section 80C limit of Rs.1.5 lakh.
Deduction under other Income Tax Act provisions
Home loan- Section 24 of the Income Tax Act allows a tax deduction for interest paid on a home loan. A tax deduction of up to Rs.2 lakh is allowable, but there is no upper limit if the property is rented out.
Long-Term Capital Gains: Taxpayers can save money on taxes by selling any long-term capital asset over a three-year period and investing the proceeds in specific instruments.
Donations: By donating money for social or charitable purposes or making contributions to the National Relief Fund, citizens of India can save money on taxes by claiming deductions on the amount they spent on donations
3. Purchase Health Insurance for Yourself and Your Family
According to experts, you can also save money on taxes by purchasing a health insurance policy for yourself and your family. Section 80D of the Income Tax Act allows taxpayers to claim a deduction of up to Rs 25,000 for paying health insurance premiums for themselves, spouses, and children. Senior citizens can claim a tax deduction of up to Rs 50,000 under this section. You can save another Rs 50,000 if you buy health insurance for your parents.
4. Pay your taxes and file your ITR on time
According to the Income Tax rules, an individual or a company must file the ITR by the 31st of July or the date specified by the Income Tax Department each year. When you fail to file your income tax return by the due date, you will be penalised.
Filing the income tax return by the due date is also required for other purposes such as obtaining a home loan, applying for immigration documents, conducting a high-value transaction, and so on. At the end of a fiscal year, various people invest in tax-saving instruments in order to save money. However, the best time to invest in tax-saving schemes is now.
5. Choose a Specific Tax Regime and Establish a Corporate Structure
It is also critical to choose the correct tax regime. There are currently two types of tax regimes. One of two options is available when providing the return.
The new tax regime provides a lower tax rate, but it does not allow for tax deductions. As a result, when requesting tax deductions under Section 80C of the Income Tax Act, one should use the older tax regime. If not, one can choose a new tax regime to reduce his income tax bill.
6. Maintain a proper book of accounts and manage cash flows
Professionals who are subject to tax audits should keep proper books of accounts in order to substantiate their revenues and expenses to tax authorities. Failure to do so may result in the payment of additional taxes, as well as interest and penalties. It is also important for working professionals to manage their cash flows.
