For everyone, especially working professionals, tax preparation is crucial. Making a thorough strategy for tax savings in the upcoming year is wise as 2023 draws near.
We emailed tax and legal experts to find out the six most crucial things working professionals should do to reduce their tax obligations in 2023 in order to make things easier for you. One of the most crucial skills to have if you're a working professional is tax planning so you can manage your finances effectively. Make learning about tax planning and income tax savings a top focus as we get closer to the New Year in 2023. In order to help you, I've produced this post, where I'll give six crucial suggestions for reducing your income taxes and help you get comfortable with the procedure. Let's look at this:
Keep your knowledge updated
The information era we are in makes it essential for everyone to be up to date. Fortunately, the Income Tax website offers all the knowledge required to reduce taxes for free.
The government has unveiled a highly user-friendly website for tax payers. Working professionals should frequently check and study the instructions and FAQs on the Income Tax website. They are easy to comprehend and will make you a more responsible and knowledgeable taxpayer. Read blogs on investments and taxes.
Make the correct investment to reduce taxes
To take advantage of the tax savings provided by the legislation, professionals should make the required investments under the correct headings. Excellent examples of investments that give people tax benefits are equity-linked savings plans.
The maximum amount of investments that may be exempted under Section 80C is Rs 1,50,000.
A further Rs 50,000 deduction can be made by include NPS investments (Section 80CCD), increasing the total deduction to Rs 2 lakhs.
Opportunities for investments that reduce taxes:
Public Provident Fund (PPF): This savings scheme is available at most banks and post offices in India for a period of 15 years at a tax-free interest rate of 7.10%, which changes quarterly.
Employee's Provident Fund (EPF): Contributions of 12% of salary to the EPF scheme are counted toward the Section 80C limit of Rs. 1.5 lakh.
Deduction under other Income Tax Act provisions Home loan- Section 24 of the Income Tax Act allows a tax deduction for interest paid on a home loan. A tax deduction of up to Rs.2 lakh is allowable, but there is no upper limit if the property is rented out.
Long-Term Capital Gains: Taxpayers can save money on taxes by selling any long-term capital asset over a three-year period and investing the proceeds in specific instruments.
Donations: By donating money for social or charitable purposes or making contributions to the National Relief Fund, citizens of India can save money on taxes by claiming deductions on the amount they spent on donations.
Purchase health insurance for yourself and your family
Experts claim that getting health insurance for you and your family will also help you save money on taxes. Taxpayers are entitled to a deduction of up to Rs 25,000 under Section 80D of the Income Tax Act for the cost of their own, their spouses', and their kids' health insurance payments. Under this clause, senior persons are eligible for a tax deduction of up to Rs 50,000. If you get parent health insurance, you can save an additional Rs. 50,000.
Pay your taxes and file your ITR on time
The ITR must be submitted by either a person or a business by July 31 or the date that the Income Tax Department specifies each year, in accordance with the Income Tax regulations. You will be fined if you don't submit your income tax return by the deadline.
Other objectives, such as getting a house loan, applying for immigration documents, carrying out a high-value transaction, etc., also call for filing the income tax return by the deadline. Many people make investments in tax-saving tools at the conclusion of the fiscal year in an effort to save money. However, right now is the perfect moment to make investments in tax-saving plans.
Choose a specific tax regime and establish a corporate structure
The right tax system must be chosen as well. Currently, there are two different tax regime kinds. When offering the refund, you have a choice between two possibilities.
Although the new tax system has a lower tax rate, tax deductions are not permitted. As a result, one should use the earlier tax system when obtaining tax deductions under Section 80C of the Income Tax Act. If not, one might pick a different tax structure to lower his income tax burden.
Maintain a proper book of accounts and manage cash flows
Professionals who are subject to tax audits should keep proper books of accounts in order to substantiate their revenues and expenses to tax authorities. Failure to do so may result in the payment of additional taxes, as well as interest and penalties. It is also important for working professionals to manage their cash flows.