Many individuals are wondering how they can maximise their tax savings for the current financial year, i.e., FY 2022-23. The amount of income tax that can be saved by an individual depends on the tax regime chosen by them.
If an individual opts for the old tax regime in current FY 2022-23 (ending on March 31, 2023), then he/she can continue to claim tax-exemptions and deductions. The old tax regime allows an individual to save income tax via various deductions and tax exemptions such as sections 80C, 80D, 80CCD(1b), 80TTA, HRA, LTA. However, if an individual opts for the new tax regime, then he/she cannot claim the above-mentioned deductions and tax-exemptions to save income tax.
Given below are the various tax-saving options for salaried individuals under the old tax regime to save income tax for the current FY 2022-23.
Common deductions under old tax regime
Standard deduction: A salaried individual is eligible for standard deduction of Rs 50,000 from salary income. No documentation is required from an individual side to claim this deduction. This is a straight deduction given to a salaried employee from their salary income.
- Section 80C deduction: An individual can claim maximum deduction of Rs 1.5 lakh by making specified investments and expenses. The deduction of Rs 1.5 lakh is deducted from the gross taxable income. As the gross taxable income comes down, the tax payable on such incomes comes down as well. As individual claiming section 80C deduction can save tax of Rs 46,800 (including cess). To claim section 80C deduction, one must invest in any of the specified instruments such as Employees' Provident Fund (EPF), Public Provident Fund (PPF), tax-saving fixed deposit, ELSS mutual funds etc. One can also claim deduction on the certain expenses as well. Some of these expenses are payment of children's school fees, life insurance premium, principal repayment of home loan etc.
- Section 80CCD (1b): This section allows additional deduction of Rs 50,000 for the investment made in National Pension System (NPS) in a financial year. This deduction is over and above the Section 80C deduction. Hence, an individual can claim maximum deduction of Rs 2 lakh by combining deductions under Section 80C and Section 80CCD(1b).
- Section 80CCD (2): This deduction can be claimed by an employee if an employer makes contributions to NPS account. The maximum deduction that an employee can claim is 10% of salary (Salary here means basic plus dearness allowance). In case of government employee, the maximum deduction of 14% of salary is allowed.
Do note that if the employer's contribution to NPS, EPF and Superannuation fund exceeds Rs 7.5 lakh in a financial year, then excess contribution will be taxable in the hands of an employee. Further, any dividend, interest or return earned on the excess contribution will be taxable as well.
- Section 80D: Premium paid for health insurance policy is eligible for tax deduction under the Income-tax Act. The maximum deduction that can be claimed under this section depends on the age of the insured. If an individual is below 60 years, then maximum deduction allowed is of Rs 25,000. However, if the individual is a senior citizen, then the maximum deduction of Rs 50,000 can be claimed. Further, additional deduction can be claimed if health insurance premium for parents is paid. Hence, an individual paying health insurance premium for self (as well as spouse and dependent children) and parents can claim maximum deduction between Rs 50,000 and Rs 1 lakh.
Also Read: How to claim deduction of Rs 1 lakh under Section 80D
- HRA tax-exemption: If you are receiving house rent allowance (HRA) as a part of your salary and is living on a rented accommodation, then you are eligible to claim tax exemption on HRA. The income tax laws define rules to calculate the amount of HRA is exempted from tax.
Also Read:Know the HRA exemption rules to claim tax exemption
- Interest paid on home loan: If you have taken a home loan, then apart from claiming deduction on principal repayment of home loan, a taxpayer can claim deduction on the interest paid on housing loan under section 24. The maximum deduction that can be claimed under this section is Rs 2 lakh.
Deduction under new tax regime
Though the new tax regime does not allow common deductions for FY 2022-23, the only deduction allowed is under Section 80CCD(2). The deduction is available under both - new and old tax regime. This deduction is linked to the employer's contribution to the employee's NPS account. The maximum deduction that can be claimed by private sector employee is 10% of salary or 14% for government sector employees.
