How to save income tax efficiently in 2023? (Latest Tips)

Long-term financial savings from wise tax planning can be put toward meeting your financial objectives on schedule. High interest rates on loans and persistently high inflation also make it more difficult to save money. A penny saved is a penny earned, after all! The new fiscal year presents the ideal opportunity for tax planning. Here’s how to effectively planning your taxes for the upcoming fiscal year.

Structure Your Tax Planning

Always structure your tax plan into monthly, quarterly and half-yearly goals. It will help you accomplish and assess your tax plan on a regular interval and you can make necessary adjustments, if anything goes wrong.

Assess your income and expenses

Start by reviewing your income and expenses from the previous financial year. This will help you understand your tax bracket and identify potential deductions.

Set financial goals

It’s essential to have clear financial goals and align your tax planning with them. For example, if you plan to buy a house or invest in a retirement plan, consider how your taxes may be affected.

Adhil Shetty, CEO, Bankbazaar.com, says, “Most of us only need three options for tax savings. One is health insurance for yourself and your family. Second is term insurance if you have dependents and financial responsibilities, and the third option is tax-saving mutual funds. However, if you are a risk-averse investor, you can opt for less-risky options such as PPF, VPF, National Savings Certificate and other government-backed schemes.”

Also Read: Is it worth buying a personalized health insurance plan?

Use tax-efficient investments

Consider investing in tax-efficient investment options such as tax-free bonds, Public Provident Fund (PPF), or Equity-Linked Saving Scheme (ELSS) etc.

Assess past investments

It is always a good idea to learn from your past experiences and challenges you have faced. Tax assessment can be done keeping in mind what were your achievements and mistakes. Plan your tax investments as per your financial goals.

Tax liability in the New Financial Year

Estimating your tax liability for the new financial year is an important step towards effective tax planning. When you have a rough idea about your expected income, you can accordingly make a plan to invest in tax-saving instruments. Take note of things like the expected hike in your salary or business income, the expected size of the bonuses, investments maturing during the year, expected change in rental income, etc. The estimation of income will help you figure out the maximum tax that you’ll be able to save and accordingly what would be your tax liability for the year.

Choose between Old and New Tax Regime

You have two options when you choose the tax slab i.e., old tax regime and new tax regime. The new tax regime is quite simple and doesn’t require you to invest in tax-saving instruments for lowering your tax liability. People earning up to Rs 7 lakh per annum are not required to pay any taxes. On the other hand, the old tax regime requires you to take the help of various tax saving methods like tax saving investments, buying insurance, etc. to lower your tax liability. The new tax regime has been made the default option. So, if you want to adopt the old tax regime, then you have to explicitly request your employer about your intention, else the employer will automatically deduct the TDS as per the new tax regime.

Source: Financial Express