New Financial Year, New Tax Planning Strategies
The commencement of a new financial year often brings with it the need for individuals to revisit their tax planning strategies. With the onset of Financial Year 2024-25 on April 1, 2024, understanding the nuances of the income tax regimes becomes paramount.
Despite the transition to a new financial year, the existing income tax laws from FY 2023-24 will persist until amendments are made by the government.
Tax Regime Selection for Salaried Employees
April emerges as a pivotal month for salaried employees as they must communicate their preferred tax regime – old or new – to their employers for FY 2024-25. This decision directly impacts the tax deductions applied to their salary income throughout the financial year.
The default tax regime is the new one, and failing to notify the employer leads to tax deductions based on the new tax slabs. Opting for the wrong regime initially may result in higher tax deductions and lower take-home salary until the subsequent financial year’s tax refund.
Understanding Tax Regimes
Before choosing a tax regime, individuals must grasp the current income tax rules and evaluate the pros and cons of each regime. Here’s an overview of the main rules under both tax regimes:
New Tax Regime (Financial Year 2024-25)
Basic Exemption Limit: Rs. 3 lakh for all age groups.
Standard Deduction: Rs. 50,000.
No tax for net taxable income up to Rs. 7 lakh.
Tax benefits for employer contributions to Tier-I NPS accounts under Section 80CCD (2).
Old Tax Regime (Financial Year 2024-25)
Basic Exemption Limit based on age: Rs. 2.5 lakh (below 60 years), Rs. 3 lakh (60-79 years), Rs. 5 lakh (80 years and above).
Various deductions including Section 80C (up to Rs. 1.5 lakh), Standard Deduction, Section 80D, HRA exemption, etc.
Tax benefits for NPS contributions under Section 80CCD (1B).
No tax for net taxable income up to Rs. 5 lakh.
Conclusion
When filing the income tax return for FY 2024-25, individuals should compare their tax liability under both regimes based on actual taxable income. This comparison enables them to select the most advantageous tax regime and file the ITR accordingly, optimizing their tax obligations for the year. Consult a Finance Professional like a Chartered Accountant or a tax practitioner to plan your decisions and actions early on.
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