Filing Income Tax Returns (ITR) can often be a hectic task, but a necessary one as failure to do so may land you in legal trouble.
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As the tax season approaches, many salaried individuals will be filing their ITRs while also wishing to reduce their income tax burden.Â
However, due to lack of proper knowledge, doing so seems almost impossible. But what if I told you there are ways in which you can reduce your income tax burden
Sounds too good to be true, but insights from Dipesh Jain, Partner at Economic Laws Practice, can help you ease the tax burden.
Ways to reduce income tax burden
Pre-emptive payment of advance taxes -Â While it may not sound like traditional tax planning, it’s crucial, particularly for non-salaried individuals, to estimate their income for the year and pay advance taxes accordingly.
“It is important for taxpayers, especially the non-salaried class, to pre-empt their income for the year and pay appropriate advance taxes, to mitigate the risk of any interest payouts at the time of filing the income-tax return,” said Jain.
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Regularly checking Form 26AS to ensure accuracy in tax withholding, commonly known as “TDS,” against your name is also advised to rectify any discrepancies with the payer promptly.
Utilise additional deductions through NPS: Taxpayers have the opportunity to claim an additional deduction of Rs 50,000 by investing in the National Pension System (NPS) under section 80CCD of the Income-tax Act, 1961.
“This may be a good avenue to minimise taxes in certain cases, and in the same breadth indulge in some savings for the old age, provided liquidity is not much of a concern today for the taxpayer, as the funds in NPS may be locked in for certain period,” said Jain.Â
Strategic management of capital gains: Individuals who have earned Long Term Capital Gains (LTCG) from the sale of house property and intend to purchase or construct a new property in the future can minimise their tax liability by depositing funds in specified Banks/Institutions.
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“In case there are no plans to buy / construct a new house property, then the taxpayers can also explore purchasing certain notified bonds to mitigate the tax liability,” said Jain
Similar benefits can be availed by investing LTCG from assets other than residential property into residential real estate, albeit with careful consideration of the nuances involved.
Opt for long-term investments in securities: For taxpayers in the highest tax bracket, opting for long-term investments in securities like Mutual Funds, Listed/Unlisted shares, and other financial instruments could be advantageous due to the lower capital gains tax rate.
“This decision would also be driven by the ‘risk appetite’ of such taxpayers. Â Separately, it is pertinent to note that while this will not reduce the tax burden for FY 2023-24, this is a longer-term strategy and will help reduce taxes year-on-year,” said Jain.Â
Explore tax-saving investments: Taxpayers can explore various other ways such as life insurance policies, mediclaim, long-term fixed deposits, Public Provident Fund (PPF), and specified mutual funds to reduce their tax burden. Investing in these instruments can provide dual benefits of tax savings and financial security.
Taxpayers can adopt these strategies to potentially lower their tax liabilities while filing income tax returns for FY 2023-24.
