Tax planning is a daunting task for both individuals and corporates alike. Every person liable to pay income tax has many options to choose from while tax planning. Given the number of amendments, notifications, and sections in the Income Tax Act, each person’s tax planning is always different. However, it is important for every entity to know the updated provisions of income tax, so that they can make a wise choice of savings and investments with twin benefits, one for self and the other as an ardent citizen contributing a fair share to the economy.
Individuals and corporates try to find ways and means to evade tax and ensure minimum or no tax is paid from their pockets. However, one must always remember that accurate tax planning not only enables minimum tax payments but maximum rewards.
No doubt tax planning can be a challenging task, but with the right information, this task can become simple and easy.
Let us now look at some points that one needs to keep in mind while planning taxes in India for the financial year 2022-23;
Understand your Income Tax payment slab:
It is essential for any entity to forecast its income for a financial year in order to figure out how much income tax they are liable to pay. Once they identify the income tax slab, it is easier to divert funds into the right investments to reduce tax burdens. The government has not changed the tax slabs for FY 2022-23 and income tax is payable at 5% being the lowest to 30% being the rate for the highest slab.
Forecast the tax to be paid considering the current investments:
After identifying the income tax slab, one must pre-calculate an approximate tax amount that would be liable to be paid after considering all the current investments and expenses for the financial year. This serves as a guide to help draw the best tax planning solutions based on the updated provisions of the Union Budget in order to start investments and reduce tax liability.
Evaluating the deductions available for existing/new investments and expenses incurred:
The Union Budget 2022-23, has made some remarkable amendments and provisions to enable people to save for their future and ensure remedies for their expenses, considering the struggle that the entire nation had to go through for a brief period.
Some initiatives provided by the government that can help individuals and corporates in planning their taxes efficiently for FY 2022-23 are;
Investments under Section 80C:
Investments made to Unit linked Insurance Scheme, Equity Linked Saving Scheme (ELSS), Sukanya Samriddhi Scheme, Tax saving Fixed deposit scheme, Senior Citizens Saving Scheme (SCSS), National Saving Certificate (NSC), contributions to Provident fund, Public Provident fund are eligible for a deduction of Rs. 1,50,000 for FY 2022-23.
Any amount of contribution made to the Employees Provident Fund (EPF) was tax-free earlier. However, from FY 2022-23, if the contributions made by private sector individuals are above Rs.2,50,000 per year, then the interest earned on the amount contributed above the said limit would be taxable. For government employees, this contribution limit is Rs.5,00,000.
Investment under Section 80 CCD:
Contributions to the National Pension Scheme (NPS) are now revised for state government employees. Just like the central government employees, state government employees are now eligible for a deduction of 14% of the contribution from their wages as against the earlier 10%. The private sector employees can claim a deduction of 10% only.
It is important to note that the investments in the National Pension Scheme (NPS) made by individuals are eligible for an additional deduction of Rs.50,000, over and above the Sec 80C deduction limit of Rs.1.5 lacs. The additional deduction is only available for investments made to Tier-I NPS subscribers.
The Corporates can claim the amount contributed by them towards Employer’s Contribution to NPS as a Business Expense, to help reduce their tax liability.
Persons who are self-employed and engaged in business and profession can claim 20% of their gross total income under Section 80 CCD (1)
Payments made under Section 80 D:
This section covers the amount paid for the medical premium. An individual can claim a deduction of Rs.25,000 for medical premiums paid for self, spouse, and children. Senior citizens can avail of a maximum deduction of Rs. 50,000.
If an individual pays a medical premium on behalf of parents who are senior citizens, then they can avail of an additional deduction of Rs. 25,000.
Payments made under Section 80 E:
Interest paid on loans for the higher education of self, spouse and children are tax-free.
Donations under Section 80 G:
Donations made can be claimed at 50% to 100% of the amount paid to trust funds and charities specified under Section 12.
- Under Section 10(2) of the IT Act, any amounts received by Hindu Undivided Families (HUF) are exempt from tax.
Virtual Digital Assets:
Income earned from the transfer of digital assets, including cryptos, bitcoin, etc. is taxable at 30% starting April 2022 and a TDS of 1% applies for transfers or gifting of virtual assets from July 2022.
Long Term Capital Gains (LTCG):
Amounts received from the sale of long-term assets up to an amount of Rs. 50 lacs are exempt from tax if they are reinvested in REC/NHAI/notified bonds within six months from the sale. Also, sale proceeds from long-term assets other than house property, if reinvested in the house property, are exempt from tax.
Any amount received as COVID-19 medical treatment from any person, including an employer, is tax exempt.
Any sum received by a family member (from other than the employer) because of the death of a family member from Covid-19 up to Rs.10 lacs is exempt from tax. There is no limit on the amount received by the family member from the employer of the deceased.
- The government has now provided a rectification window of two years from the relevant assessment year to allow citizens to rectify any mistakes, claim deductions, declare income, etc. to their earlier filed returns. They have taken this measure to prevent citizens from evading taxes.
We should not consider tax planning as a last-minute exercise. Efficient and accurate tax planning bears the best results for both corporates and individuals. It not only helps in saving taxes. But also helps in making the right choices regarding savings and expenses based on current and future needs.
Tax planning by financial and tax professionals at Diligen helps clients to plan their finances throughout the year. Diligen ensures they update all their tax advisors and consultants with the latest tax reforms and provide the best tax solutions that do not pinch one’s pockets. The expert and timely tax advice provided by Diligen will not only lessen the tax planning burden but also guarantee you the right peace of mind.