Tax Planning means planning your funds to ensure that you pay the least amount of taxes possible while still adhering to the rules. Assessing income, expenses, investments, and other financial activities is part of the process to find areas where taxes might be saved. Gaining maximum tax efficiency, which allows people and corporations to keep a larger portion of their revenue, is the main objective of tax planning.
Now for any salaried person, it may be difficult to be updated on every amendment that takes place for tax-related purposes and end up hiring a CA. However if that person wants to manage his tax independently, then here are a few tips he can adhere to and implement it.
1. Understanding the Tax Slabs: The first step in tax planning is understanding the applicable tax slabs based on income and age. As per the financial year 2025-26, the tax rates are categorised into:
- New Tax Regime
- Old Tax Regime
Under the new tax regime of section 115BAC,
- Tax on earnings up to ₹4L is NIL.
- From ₹4L-₹8L it is 5%.
- ₹8L-₹12L it is 10%
- ₹12L- ₹16L it is 15%
- ₹16L- ₹20L it is 20%
- ₹20L-₹25L it is 25%
- And any amount above ₹25L is 30%
2. Utilise Section 80C Deductions
Section 80C of the Income Tax Act allows deductions up to Rs. 1,50,000. Common investment options under this section include:
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
(this benefit is allowed only in the old regime).
3. Take Advantage of Section 80D (Health Insurance)
Health insurance premiums are eligible for deduction under Section 80D:
- Self, Spouse, and Children: Up to Rs. 25,000.
- Parents (Below 60 years): Additional Rs. 25,000.
- Parents (Above 60 years): Additional Rs. 50,000.
4. Claim House Rent Allowance (HRA) by referring to section 10(13A)
5. Standard deduction up to ₹50,000 (old regime) and ₹ 75,000 (new regime)
6. Section 80E (Education Loan Interest): If you have an education loan, the interest paid is fully deductible under Section 80E. This deduction is available for up to 8 years or until the loan is repaid, whichever is earlier.
7. Take Advantage of NPS Contributions (Section 80CCD)
The National Pension System (NPS) is an excellent tool for retirement planning. Contributions by the employee are eligible for:
- Section 80CCD(1): Deduction up to Rs. 1,50,000 (included in the 80C limit).
- Section 80CCD(1B): Additional deduction up to Rs. 50,000.(deduction allowed only if followed old regime)
8. File returns on or before the due date otherwise it would attract penalties and interest.