Tax Planning: Key Deductions, Exemptions Everyone Should Know Before ITR Filing

Tax planning is an essential part of managing your personal finances. By understanding and using the various deductions and exemptions available under the Income Tax Act, 1961, you can significantly reduce your total taxable income.

Whether you are a salaried person, a freelancer, or a business owner, knowing the details of various deductions and exemptions you can claim can help you maximise your savings.

As the income-tax-return filing process for FY 2024-25 and Assessment Year 2025-26 has already started, it’s important to know about the deductions and exemptions. While filing ITR, the taxpayers need to gather all necessary documents and report the relevant information without error to maximise gains from deductions.

The deductions and exemptions can be claimed under various sections of the I-T Act, 1961, depending on the tax regime you choose. The old tax regime allows several deductions, while the new tax regime offers lower tax rates but only limited deductions.

Here are some deductions and exemptions that everyone should be aware of:

Section 80C is one of the most common ways to save on taxes. It lets you reduce your taxable income by up to Rs 1.5 lakh in a financial year through certain investments and payments like:

• Employee Provident Fund

• Public Provident Fund

• Life Insurance Premiums

• Equity-Linked Savings Scheme

• Five-Year Fixed Deposit with Banks

• Sukanya Samriddhi Yojana

• Principal Repayment of Home Loan

• Tuition Fees for the education of up to two children in India

• Senior Citizens Savings Scheme

• Unit Linked Insurance Plan

• Post Office Time Deposit (five years)

Medical bills can be expensive, but Section 80D helps by giving you extra tax savings on health insurance premiums for yourself, your family, and your parents. This benefit is in addition to the Rs 1.5 lakh limit under Section 80C. The limits are:

• Up to Rs 25,000 for health insurance premiums paid for yourself, your spouse, dependent children, or parents.

• Up to Rs 50,000 if your family or parents are senior citizens (aged 60 years and above)

This deduction also covers expenses related to preventive health check-ups up to Rs 5,000 annually.

For salaried individuals living in rented accommodation, HRA can provide significant tax savings. The exempted amount for HRA deduction is the lowest of the following:

• Actual HRA received from your employer

• 50% of (Basic Salary + DA) for metro cities (40% for non-metro cities)

• Rent paid minus 10% of (Basic Salary + DA)

To claim this exemption, you must submit rent receipts or a rent agreement to your employer or during tax filing.

Section 24(b) of the Income Tax Act lets you deduct the interest paid on your home loan. You can claim a maximum tax deduction of Rs 2 lakh per year from your income for a self-occupied house, as long as the house is built or bought within five years.

Combined with the principal repayment deduction under Section 80C, home loans offer substantial tax benefits.

Salaried taxpayers receive a standard deduction from their taxable income every year, making tax calculations simpler. For the financial year 2024-25, the standard deduction remains Rs 50,000 under the old tax regime.

However, salaried taxpayers can get the benefit of a standard deduction of Rs 75,000 under the new tax regime.

Leave Travel Allowance is a tax exemption available to salaried employees for travel expenses on vacations within India. Employees can claim this exemption twice in a block of four years, provided they submit proper documents like travel tickets.

The exemption covers only actual travel costs, such as air, rail, or bus fares.

The Income Tax Act offers several exemptions that help reduce the tax burden on capital gains.

• Section 54: You can avoid paying tax on long-term capital gains from selling a residential property if you reinvest the gains in another residential property.

• Section 54EC: Long-term capital gains can be exempted if you invest the sale proceeds in specified bonds within six months of the sale.

• Section 54F: If you sell any asset other than a residential house and invest the entire sale amount in a residential property, you can claim exemption on the long-term capital gains.

• Section 54B: Selling agricultural land used for farming for at least two years qualifies for exemption if you reinvest the gains in new agricultural land within two years.

• Section 54D: If land or buildings used for industrial purposes are compulsorily acquired, you can claim exemption by reinvesting the proceeds in new industrial assets within three years.

• Section 54EE: Capital gains from long-term assets can be exempted if invested in units of a specified fund within six months of the sale, with an investment cap of Rs 50 lakh per financial year.

Effective tax planning is about being aware of the deductions and exemptions available and planning your finances accordingly. By making the most of these tax-saving options, you can reduce your tax liability.