The tax season is underway as the financial year 2023-24 (FY24) approaches its conclusion in March. Employees across organizations are required to provide evidence of their investments to their respective companies. This step is crucial for efficient financial management and allows individuals to leverage various tax benefits.
Tax Benefits and Income Limits: Understanding India’s Old and New Tax Regimes
In accordance with India’s Income Tax Act of 1961, individuals falling within the taxable income bracket have the opportunity to avail tax benefits under the old tax regime. These benefits encompass various allowances, including house rent, leave travel concessions, food, and conveyance, all contingent upon the individual’s salary package.
As per the taxation laws of India, the effective tax-free income limit is Rs 5.5 lakh under the old tax regime and Rs 7.5 lakh under the new tax regime, inclusive of standard deduction.
Strategic Tax Planning: Importance of Proof in Investment Declaration and TDS Guidelines
Effectively managing your salary structure and other income sources is essential for tax savings. When completing the investment declaration, it is crucial to provide proof of your investments. Without proper documentation, your employer will not consider these investments when calculating your tax liability. Notably, employees are not required to submit proof of provident fund deduction.
According to taxation rules, employers are mandated to deduct TDS (tax deducted at source) from the net income of every employee if the declaration is not provided, as clarified by the financial services company HDFC. Upon receiving the declaration, the employer will consider the proposed tax savings deductions from the employee’s salary before calculating the tax to be deducted at source.
Tax Benefit Claim Process: Form 12BB Submission and Annual Limit Overview
Starting in 2016, employees are mandated to submit Form 12BB to their employers to avail various tax benefits. A sample Form 12BB can be accessed on the Income Tax Department website. As per taxation rules, the maximum amount an employee can claim for tax benefits is up to Rs 1.5 lakh annually.
Key Provisions for Tax Deductions: Understanding Sections 80C, 80CCC, 80CCD, and 80D
- Section 80C is a pivotal provision of the Income Tax Act, allowing deductions for expenses related to life insurance premiums, Equity Linked Savings Schemes (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and school tuition fees for children, among other eligible expenditures, up to a total of Rs 1.5 lakh.
- Section 80CCC enables deductions for payments made towards annuity pension plans, including interest or bonus charged on the annuity, as elucidated by the financial services platform Groww.
- Section 80CCD encompasses the National Pension Scheme (NPS). No proof submission is required for NPS investments under Rs 50,000. However, proof of PAN card and NPS transaction statement is necessary if the investment exceeds this limit, according to Groww.
- Section 80D provides tax deductions on health insurance premiums, with a maximum limit of Rs 25,000 in a financial year.
Additionally, there are further provisions for claiming benefits related to education loans, donations, and more.
Simplified Tax Regime: Form 12BB Declarations and Key Deductions Under the New System
The updated tax regime represents a streamlined version of the previous system, presenting a reduced tax rate while removing many exemptions from the earlier scheme. Employees are solely obligated to provide Form 12BB declarations to their employers. They are eligible to claim rebates under Section 87A, limited to Rs 25,000, and the standard deduction of Rs 50,000.
Expert Advice: Income Declaration and TDS Refund Process for Tax Compliance
Experts recommend declaring all income sources as a best practice to avoid potential tax evasion issues, which may result in additional penalties. While it is advisable to maintain proper documentation when submitting the investment declaration, if for any reason this doesn’t occur and the employer deducts TDS, employees can seek a refund of the excess TDS deducted by filing their income tax return.
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