Tax exemption tactics: Strategies for a sound and agile tax planning in India

Due to rapid changes in the market, a.k.a. the volatility and the political landscape, tax planning today can be challenging. As a business owner, taxes are an inevitable part that you need to take care of. Furthermore, tax laws and regulations are constantly changing, and economic uncertainty can make it challenging to navigate the tax landscape effectively. 

Keeping your tax plan agile and adaptable is crucial to ensuring tax exemptions. By developing a flexible tax plan, you can minimise your tax liability, take advantage of tax deduction opportunities, and navigate the uncertainties of the landscape. 

What are the tax exemptions available in India?
 

Tax exemptions are essential to tax planning. They help individuals and businesses in India reduce their tax liabilities. The exemptions are deductions from the taxable income. Understanding the available tax exemptions is crucial in creating an effective tax plan. 

Also read: https://www.idfcfirstbank.com/finfirst-blogs/finance/know-all-changes-in-the-new-tax-regime

Tax exemptions for individuals
 

• Standard deduction: In the Union Budget of 2018, the government introduced a standard deduction of Rs 50,000 for salaried taxpayers. The standard deduction covers transportation, medical, and other work-related expenses. This standard deduction applies to all employees, including pensioners.

• Section 80C: Section 80C of the Income Tax Act (IT Act) exempts investments in specific financial instruments. The maximum exemption available under this section is Rs 1.5 lakh per annum.
  
  Investments eligible for tax exemption under Section 80C include:
  
  
  • Employee Provident Fund (EPF)
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • Sukanya Samriddhi Yojana
  • Equity Linked Savings Scheme (ELSS)
  • Tax Saving Fixed Deposits (FDs)
  • Senior Citizens Savings Scheme (SCSS)
  • Life Insurance Premium
• Section 80D: Section 80D of the IT Act provides a tax exemption on health insurance premiums paid by individuals. The exemption is limited to Rs 25,000 per annum for those under 60 and Rs 50,000 per annum for those over 60.
• Section 80TTA: Section 80TTA allows you to claim a deduction on the interest earned on your savings accounts. Under this section, you can claim a tax exemption of up to Rs 10,000 on the interest earned from your savings accounts. This deduction is available to individuals and also Hindu Undivided Families (HUFs).
  
  An IDFC FIRST Bank Savings Account can help you earn interest on your savings while also allowing you to avail of the deduction under Section 80TTA. The account offers various benefits and a hassle-free account opening process.
• Section 80E: Section 80E provides tax exemption on the interest paid on education loans. The exemption is available for a maximum of eight years or until the loan is repaid, whichever is earlier.
• House Rent Allowance (HRA): HRA tax exemption is available for salaried individuals who receive HRA from their employers. The exemption is limited to the least of the following:
  
  
  • Actual HRA received
  • Rent paid minus 10% of the salary
  • 50% of the salary if the employee lives in a metro city (or 40% if they live in a non-metro city)
• Leave Travel Allowance (LTA): LTA tax exemption is available for salaried individuals and covers the expenses incurred while travelling within India. The exemption is limited to the least of the following:
  
  
  • Actual LTA received
  • Actual travel expenses incurred
  • Twice the fare of the economy class airfare or AC first class rail fare for the shortest distance between the starting point and the destination
• Medical expenses: Medical expenses incurred for self or family members can be claimed as a tax exemption. The exemption is limited to Rs 15,000 for self, spouse, and dependent children and Rs 20,000 for senior citizens.
• Education loan interest: Interest paid on an education loan for higher studies is eligible for exemption under Section 80E. The exemption is available for eight years or until the interest is paid, whichever is earlier.
• Conveyance allowance: If you receive a conveyance allowance from your employer, you can claim a tax exemption on this amount. The exemption is limited to Rs 1600 per month or Rs 19,200 per annum.

Also read: https://www.idfcfirstbank.com/finfirst-blogs/finance/8-tax-saving-investment-plans

Tax exemptions for businesses
 

• Business expenses: As a business owner, you can claim deductions on various business expenses such as rent, salaries, travel expenses, and depreciation of assets. It is important to maintain proper records and receipts to support these deductions.
• Deductions for R&D: Businesses engaged in research and development can claim tax deductions for expenses incurred on R&D activities under Section 35(1)(ii) and Section 35(2AB).
• Deductions for donations: If your business makes donations to certain charitable organisations, you may be eligible for tax deduction under Section 80G of the IT Act. The deduction amount depends on the nature of the donation and the organisation receiving it.
• Export promotion deductions: If your business is exporting goods or services, you may be eligible for various tax exemptions under the Export Promotion Capital Goods (EPCG) scheme. These include exemption from customs duty, central excise duty, and service tax on the import of capital goods.
• Exemption for start-ups: The Indian government has introduced several tax exemptions to encourage entrepreneurship and innovation. These include a three-year tax holiday, exemption from capital gains tax on the sale of residential property, and tax exemption on investments made by angel investors.

Also read: https://www.idfcfirstbank.com/finfirst-blogs/finance/is-tax-refund-amount-taxable

How can you keep your tax plan agile?
 

An agile tax plan is necessary to ensure full advantage of tax saving opportunities in a constantly evolving tax regime. Here are 6 tips to help you keep your tax plan agile:

1. Stay updated on tax laws: Tax laws are subject to change every year, so keeping track of updates or changes that might affect your tax planning is essential.
2. Diversify your investments: Diversifying investments across different tax saving instruments, such as ELSS plans, can help you maximise your tax savings while spreading your risk.
3. Set clear financial goals: Having clear goals about your finances can help you plan your tax saving investments better. It lets you decide which tax exemption instruments to invest in and how much to invest.
4. Start tax planning early: Starting a tax plan as early as possible can help you make informed decisions and avoid last-minute investments that may not yield the desired tax benefits.
5. Consult a tax expert: Consulting a tax expert can help you understand complex tax laws and identify the best tax saving opportunities that are in line with your financial goals.
6. Review your tax plan regularly: Reviewing your tax plan at regular intervals can help you make necessary alterations based on changes in your financial situation or the tax regime.

Conclusion
 

Tax planning is critical in financial management, and keeping your tax plan agile in an uncertain landscape is essential. Understanding the tax exemptions available to you, staying informed, being proactive, reviewing your tax plan regularly, and taking advantage of tax software are some ways to achieve this goal.

IDFC FIRST Bank offers a remarkable savings account that can help simplify your decision-making process. With the IDFC FIRST Bank Savings Account, you can access over 150 free banking services and benefits, such as pre-approved loans, lifetime credit card services at no cost, and free personal accident and air insurance coverage. 

The account opening process is straightforward and entirely digital, requiring only four simple steps. More than just a means of transacting, an IDFC FIRST Bank Savings Account opens up a world of opportunities for you.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.