The 2019-20 interim budget has proposed a major tax reform, by increasing the limit for tax exemption to Rs. 5 lakh. However, the other tax slabs remain unchanged. People who earn more than Rs. 5 lakh per annum will still need to pay tax as per their slab. If your income is between Rs. 5 lakh to Rs. 10 lakh, you will need to pay 20% of your taxable income to the government.
If you are a salaried individual who falls into the 20% category, there are still ways in which you can reduce your taxable income enough that you may not need to pay any tax at all. Specifically, if you earn up to Rs. 7.75 lakh per annum, you can follow the following investment guide to ensure that you pay zero tax on your income. The aim is to reduce your total taxable income to Rs. 5 lakh.
Step 1:
You can get a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. You can do this by investing the entire sum into your PPF, or dividing it between your PPF, EPF, tax-saving mutual funds, and tuition fees paid for your children’s education. Thus, your gross income gets reduced to Rs. 6.5 lakh.
Step 2:
The standard deduction that you can claim against your income has been increased from Rs. 40,000 to Rs. 50,000. Once you claim this, your gross income decreases to Rs. 6 lakh.
Step 3:
Invest some money in the National Pension Scheme. Under Section 80CCD (1B) of the Income Tax Act, you can claim a deduction of Rs. 50,000 in this category. Your gross income now reduces to Rs. 5.5 lakh.
Step 4:
If you have interest income from other sources, you can claim a deduction on it as well, under Section 80TTA of the Income Tax Act. The deduction amount is Rs. 10,000, which reduces your gross income to Rs. 5.4 lakh.
Step 5:
As income up to Rs. 5 lakh is tax exempt, your total tax dues will be – zero.
Here’s a table illustrating how this works:
| Tax Calculation - Particulars |
Existing (in Rs. per annum) |
Post Interim Budget (In Rs. per annum) |
| Gross salary |
7,75,000 |
7,75,000 |
| Less: Standard deduction |
(40,000) |
(50,000) |
| Net salary |
7,35,000 |
7,25,000 |
| Income from other sources |
10,000 |
10,000 |
| Gross taxable income |
7,45,000 |
7,35,000 |
| Less: Deduction under Section 80C |
(1,50,000) |
(1,50,000) |
| Less: Deduction under Section 80CCD (1B) |
(50,000) |
(50,000) |
| Less: Deduction under Section 80D |
(25,000) |
(25,000) |
| Less: Deduction under Section 80TTA |
(10,000) |
(10,000) |
| Total income |
5,10,000 |
5,00,000 |
| Income tax |
14,500 |
12,500 |
| Less: Rebate under Section 87A |
0 |
(12,500) |
| Total tax payable after rebate |
14,500 |
0 |
| Surcharge @ 10%/15% |
0 |
0 |
| Total tax payable after surcharge |
14,500 |
0 |
| Education cess @4% |
580 |
0 |
| Total tax, surcharge, and education cess |
15,080 |
0 |
| Difference – Extra tax payable |
(15,080) |
Our takeaway – A salaried individual with a gross salary of Rs. 7.75 lakh, who claims the full benefit of Section 80C, 80D, and 80CCD(1B), will not have to pay any tax. In fact, they will save Rs. 15,080.
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