Here's how you can slash your FY25 tax burden through early planning

FY25 Financial Focus: Are you concerned about optimising your financial planning and tax-saving strategies for FY25? As we have already entered the new fiscal year, experts stress the importance of early planning to maximise investment options and minimise tax liabilities.

"Whether it's investment planning, insurance coverage, or budget tracking, now is the time for comprehensive financial planning to ensure a robust portfolio. With unpredictable global events like pandemics or geopolitical tensions, being prepared for emergencies is non-negotiable," said Arpit Suri, CA & personal finance expert.

Rather than treating tax planning as an annual event, experts advocate integrating it into monthly financial routines. For salaried individuals, the process can be streamlined by reallocating systematic investments into tax-efficient schemes and consistently investing in tax-saving instruments such as ELSS and NPS.

However, independent professionals and gig workers face heightened responsibility in tax planning. They are urged to engage with accountants to discern the nuances between tax evasion and avoidance, ensuring compliance while optimising tax liabilities. Regular payment of taxes, including quarterly dues and Goods and Services Tax obligations, is highlighted as crucial for this demographic.

"Segregating tax-saving investments into manageable monthly contributions eases financial burdens at year-end. Selecting appropriate investment avenues is crucial, with options such as life insurance policies offering dual benefits of coverage and tax exemptions under Section 80C. Alternatively, investments in Equity Linked Savings Schemes (ELSS) or Public Provident Fund (PPF) provide avenues for tax savings while building future financial reserves," Suri added.

Moreover, integrating health care plans into tax-saving strategies offers additional financial security. By safeguarding savings against unforeseen medical expenses, health insurance plans provide a vital cushion for financial stability. However, prudent consideration of factors such as lock-in periods, financial objectives, risk appetite, and income tax brackets is essential when selecting health care plans to ensure optimal tax-saving benefits.

Here are several tax-saving investment options to consider:

Equity-Linked Tax Savings Scheme (ELSS)

ELSS (Equity Linked Savings Scheme) funds, popularly known as tax-saving mutual funds, allocate a significant portion of their assets to equity and equity-related instruments, offering investors tax benefits under Section 80C of the Income Tax Act. With a mandatory lock-in period of three years, ELSS funds enable taxpayers to claim deductions of up to Rs 1.5 lakh from their taxable income. Investing in ELSS funds not only provides potential long-term wealth appreciation through diversified equity portfolios but also allows for tax savings of up to Rs 46,800 annually. Upon redemption after the lock-in period, investors incur long-term capital gains tax at 10 per cent on gains exceeding Rs 1 lakh, making ELSS funds an attractive option for tax-efficient wealth creation.

New Pension Scheme (NPS)

Individuals investing in the National Pension System (NPS) can enjoy various tax benefits. Firstly, subscribers can claim deductions under Section 80 CCD (1), up to Rs 1.5 lakh within the overall ceiling of Section 80 CCE. Additionally, an exclusive deduction of Rs 50,000 is available under Section 80 CCD (1B) for NPS investments, over and above the Section 80C deduction. Corporate sector employees also benefit, with employer contributions up to 10 per cent of salary deductible under Section 80 CCD (2).

To avail these benefits, individuals can invest through a Point of Presence or the eNPS website, with tax benefits applicable only to investments in Tier I accounts. Investment proof can be obtained through transaction statements or downloaded receipts. Besides Section 80 CCD, NPS offers tax exemptions on partial withdrawals under Section 10 (12B), tax-free annuity purchase, and tax-exempt lump sum withdrawals up to 60 per cent of the total corpus, with annuity income taxed according to applicable slabs.

Infrastructure Bonds

Investing in infrastructure bonds continues to be a favoured avenue for tax-saving investors, as they enjoy the dual benefits of tax deductions under Section 80C of the Income Tax Act and competitive interest rates. These bonds, approved by the government, offer a maximum deduction limit of Rs 20,000, supplementing the Rs 1 lakh deduction allowed under Section 80C. With their long-term tenure and secured nature, these bonds provide investors with a stable investment option with potential tax advantages.

Sukanya Samriddhi Yojana

This scheme is tailored for parents saving for their daughters' future, with a minimum investment of Rs 1,000. The scheme offers tax-free returns and can be used for education and marriage expenses.

Falling under the EEE format, it offers exemptions up to Rs 1.5 lakh under Section 80C of the Income Tax Act, although this is not applicable in the new regime. The interest earned on maturity is tax-free and compounded annually, making it an attractive option. With a lock-in period of 21 years, withdrawals post-maturity are tax-exempt, providing a financial boon for families. Additionally, upon the girl child reaching 18 years, withdrawals of both principal and interest are tax-exempt. Beyond its tax advantages, the scheme stands as a pillar for the welfare of girls and remains a favoured option for tax-saving endeavours.

Health Insurance

Health insurance plays an important role not only in safeguarding your health but also in optimising tax savings. By securing health coverage for yourself, your family, and even your parents, individuals can benefit from substantial tax deductions. The exemption limit varies based on the covered members, ranging from Rs 25,000 for self and family to up to Rs 1,00,000 for self (senior citizen) and family plus senior citizen parents.

Life Insurance

Taxpayers can avail deductions under Section 80C of the Income Tax Act by paying life insurance premiums for themselves, their spouse, or children, regardless of their dependency or marital status. The deduction, capped at Rs. 1.5 lakh annually, extends to policies from any insurer approved by IRDAI. However, for policies issued after April 1, 2012, the premium should not exceed 10 per cent of the sum assured, while for pre-2012 policies, the limit is 20 per cent. Policies after April 1, 2013, covering disabled individuals require premiums not to surpass 15 per cent of the sum assured. Maturity proceeds are tax-exempt under Section 10(10D) if premiums stay within prescribed limits, but may be taxable if exceeded. However, proceeds upon the insured's death remain tax-free for nominees, regardless of premium percentages.

Public Provident Fund (PPF)

Investors in India are finding the Public Provident Fund (PPF) scheme increasingly attractive due to its tax benefits. Under Section 80C of the Income Tax Act of 1961, the principal amount invested in a PPF account is eligible for income tax exemption, with a cap of Rs 1.5 lakh per financial year. Moreover, the accrued interest on PPF investments remains tax-free. Consequently, upon maturity, the entire redeemed amount from a PPF account is exempt from taxation, making it a lucrative option for investors seeking tax-efficient savings avenues.

Unit Linked Insurance Plans (ULIPs)

ULIPs, a versatile financial tool offering both investment growth and life coverage, also come packed with tax benefits. Firstly, you can avail a deduction of up to Rs 1.5 lakh annually on premiums under Section 80C of the Income Tax Act, 1961. Secondly, the maturity benefits from ULIP policies are exempt under Section 10(10D) of the same act. Additionally, the payout to nominees in case of unfortunate events remains tax-free under the same section, ensuring families receive the full sum without deductions. These perks make ULIPs not just a smart investment but also a tax-efficient financial strategy.