Pay no income tax on Rs 12.75 lakh of income

Do you know that, with new budget proposals, there will be no tax if your taxable income is Rs 5 lakh, but wait, even with higher income of Rupees 12 lakh 75 thousand, you can end up paying no income tax at all.

Budget 2019 has brought many things to cheer about but the most important thing which people look is whether they would be able to save more income tax or not?

This year, the answer is yes, if your taxable income is less than Rupees 5 lakh you will not need to pay any income tax. This has become possible with the section 87A rebate which has been raised from Rupee 2,500 to Rupees 12,500.

But if your taxable income is above Rupees 5 lakh there is not much to help you in saving any significant amount of income tax.

However, one advantage which all salaried taxpayers will get is - increase of standard deduction from Rupees 40,000 to Rupees 50,000.

You can save tax on higher income

But what if I tell you that you can end up paying no income tax even with much higher income? Yes, that is very much possible with usual spending and investing actions. Income tax law allows you to claim many rebates, exemptions and deductions for the expenses incurred for various purposes. And if you happen to be eligible for these benefits you may save substantial income tax.

Let us see how it works. The budget proposals will kick in next year so new benefits can be claimed only for the income earned during next financial year starting from April this year.

To understand it better, let us first see, even this year, how these exemptions, rebates and deductions can save your income tax on much higher salary income.

For your income earned during current financial year 2018-19 you can avoid paying even a single penny of income tax if your income is even this year 8 lakh15 thousand and you happen to tick the right boxes.

Here are all the deductions that you can easily get

ü Standard deduction of Rupees 40,000
ü Section 80C deduction of Rupees 1.5 lakh
ü additional deduction of Rupees 50,000 on NPS investment
ü on  home loan interest of Rupees 2 lakh
ü on health insurance premium of Rupees 25000 for self, spouse and children
ü and health insurance premium of Rupees 50,000 paid for senior citizen parents

All these deduction add up to Rupees 5 lakh 15 thousands. So if your annual earnings from salary is Rupees 8 lakh 15 thousand and you apply a deduction of Rupees 5 lakh 15 thousand, your taxable income will reduce to Rupees 3 lakh. At this income you would have needed to pay a tax of Rs 2,500. However, Income upto Rupees 3.5 lakh makes you eligible for section 87A rebate of upto Rupees 2,500.  So after applying this rebate your payable tax is reduced to zero.

Much higher saving with Budget 2019

With budget 2019 proposal you will end up paying nill tax even on a higher income of Rupees 10.25 lakh. This will be possible because of enhanced standard deduction of Rupees 50,000 and section 87A rebate of Rupees 12,500 which will kick in next year.

If you meet all the deduction requirements then you would be eligible for a total deduction of Rupees 5 lakh 25 thousand.This will bring down your income of Rupees 10 lakh 25 thousand to Rupees 5 lakh. As next year, due to higher rebate up to income of Rupees 5 lakh, you will not be needed to pay any tax.

No tax even on Rs 12.75 lakh income

What if we tell you that you can pay zero tax even on much higher income? Yes, that’s true there are few more avenues left with which you can save more. As like in the current case of Rupees 10 lakh 25 thousand income if you meet all these deduction requirements then you can pay nill tax on income of even Rupees 12.75 lakh. But this will differ on case to case basis. One avenue is deduction for interest paid on education loan under section 80E. So if you are paying around Rupees 1 lakh of interest on account education loan for yourself or your child, then you can claim it as deduction.

The additional exemption through HRA

The next significant tax saving avenue is House Rent Allowance even when you have a self occupied house. As we have already calculated home loan interest for a self occupied property so HRA benefit will come with certain conditions. You can claim HRA benefit only when you have a self occupied house with active home loan in a different city but you are living on rent in the city of your work.

So if you can get an exemption of Rupees 1.5 lakh on account of HRA then your total additional deduction would be Rupees 2 lakh 50 thousands. Therefore you will pay no tax on the income Rs 12 lakh 75 thousands.