Tax planning is more cost-effective the sooner you start. Every person who receives a salary is responsible for paying taxes on gains and income from other sources. You spend a large portion of your salary on taxes. However, citizens can take advantage of tax breaks while completing their income tax return (ITRs). However, it is not a recent discovery that due to the daily commotion, it is likely that many taxpayers would rush to claim these tax benefits at the last minute, which may result in mistakes. Therefore, thorough planning is necessary if you want to reduce your tax liability.
One of the most important components of financial planning is tax planning because the main goal is to minimize tax liability to the greatest possible extent in order to maximize savings while still complying to legal obligations and standards. One of the most important aspects to consider while undertaking tax preparation is timing.
Everyone, including professionals in the workforce, should prepare their taxes. It is wise to have a strategy in place for tax reductions in the coming year as 2023 approaches. To make it simple for you, we emailed with a few tax and legal experts to find out the six most crucial things working adults should do to reduce their tax obligations in 2023. Let’s look at this:
1- Keep Up With the Times
Everyone needs to stay updated because we are in the era of information. Fortunately, it is because of technology that the Income Tax website offers all the information needed for tax savings without charge.
2- To maximize taxes, make the appropriate investment
To take advantage of the tax savings provided by the law, professionals must undertake the necessary investments under the proper headings. Equity-linked savings plans are excellent features of investments that also permit taxpayers to benefit from the law’s tax provisions.
In addition to the aforementioned, there’s a claim that the Indian government has made some investments eligible for tax deductions under Section 80C of the Income Tax Act.
The investments listed below can help in saving taxes.
According to Aditya Chopra, Managing Partner at Victoriam Legalis – Advocates & Solicitors, Indian individuals may deduct up to Rs 1.5 lakhs in taxes under Sections 80, 80CC, and 80CCD.
- Public Provident Fund (PPF): This 15-year savings plan, which offers a 7.10% annual interest rate that is tax-free and variable every quarter, is available at the majority of Indian banks and post offices.
- Employee’s Provident Fund (EPF): The deduction allowed under other provisions of the Income Tax Act is equal to 12% of the salary contributed to the EPF program, which counts toward the Section 80C maximum of Rs. 1.5 lakh.
- Home Loan: Section 24 of the Income Tax Act allows taxpayers to deduct interest paid on home loans. If the property is rented out, a tax deduction of up to Rs. 2 lakh may be claimed; however, there is no maximum amount.
- Long-Term Capital Gains: By selling any long-term capital asset over a period of three years and then investing the proceeds in certain securities, taxpayers can reduce their taxable income through long-term capital gains.
- Donations: Indian citizens can reduce their tax liability by claiming deductions for donations they make to charitable organizations, social causes, or the National Relief Fund.
3- Get Medical Insurance for you and your family
According to experts, buying health insurance for you and your family will also help you save on taxes. Under Section 80D of the Income Tax Act, taxpayers may deduct up to Rs 25,000 for the cost of their own health insurance premiums as well as the premiums for their spouses and minor children. Senior citizens are eligible for a tax deduction of up to Rs 50,000 under this clause. You might save an additional Rs 50,000 when you get your parents health insurance.
4- Pay Tax and File ITR on Time
According to income tax regulations, a person or a business must submit their ITR before July 31st, or the date specified by the income tax department, each year. If you fail to file your income tax return by the deadline, a penalty is assessed.
The tax return for income must be filed before the deadline in order to be eligible for various benefits, such as home loans, immigration paperwork, greater value transactions, etc. At the end of the fiscal year, many people have invested in tax-saving tools to save on taxes. But the best time to invest in tax-saving plans would be at the beginning of the fiscal year.
5- Choose a Specific Tax System and Have a Corporate Structure
The specific tax system choice is also crucial. There are now two different tax regimes. One can select either one of the two options when submitting the return.
For obtaining the greatest tax savings suitable tax regimes would be essential. The new tax system provides a chance for a lower tax rate, but it does not permit tax deductions. Therefore, one should use the previous tax system when requesting tax deductions under Section 80C of the Income Tax Act. If not, one can choose a new tax structure to reduce his income tax burden. It has been emphasized that the value of having a corporate structure once more.
The tax rates now in effect are much higher for individual professionals or businesses than they are for businesses. In this context, creating corporate structures could make sense, especially for experts with a well-established practice. This choice should be compared to the advantages of using profits on an individual basis.
6- Control Cash Flows and Keep an Accurate Ledger of Accounts
According to a source, individuals who are subject to tax audits should keep accurate books of accounts in order to prove their income and outgoings to tax authorities. If you don’t, you can have to pay more tax, plus interest and penalties. Additionally, managing cash flows is crucial for working professionals.
Professionals who earn more than INR 50 lakh are no longer eligible for section 44ADA’s benefits. If at all possible, professionals whose fees are near to this barrier should manage their cash flows to avoid going over it.