Salary employees should file their income tax returns at the beginning of the fiscal year 2023–2024 because, after various deductions, income tax is computed based on several tax slabs.
According to the effective slab rates on his or her total income falling under the old or new tax regime, every salaried employee would be subject to taxation. Salary employees should file their income tax returns at the beginning of the fiscal year 2023–2024 because, after various deductions, income tax is computed based on several tax slabs. As a result, tax planning must begin with the commencement of a new fiscal year. Under the New Tax Regime, new income tax slabs and rates have been proposed in Finance Bill 2023.The two major announcements made in the Union Budget for 2023–24 were that the FM increased the tax exemption limit under the new tax regime from ₹2.5 lakh to ₹3 lakh and that a standard deduction of ₹50,000 was introduced under the new tax regime, which was previously available only under the old tax regime. However, these changes will take effect starting next year i.e. for AY 2024-25. Do salaried people know that they may reduce their effective tax rate to zero if they earn a gross salary of Rs. 10 lakh in a fiscal year? We’ll find out from our experts.
Every salaried employee would be subjected to tax as per the marginal slab rates on his total income (i.e. Gross Total Income less eligible deductions). Thus, for a salaried taxpayer, his salary income would form a major component, he would be required to take into account any other income such as interest income from banks, rental income, etc. for the purpose of computing his tax. Salaried individuals with no other major source of income have to cope not only with rising inflation but also with the increase in the cost of living. Hence, in order to optimise their tax planning, employees need to efficiently utilise the available deductions and exemptions under the IT Act. Accordingly, any salaried person with a gross salary of Rs. 10 lakhs may claim the following generally claimed deductions under the old tax regime so as to bring their effective tax rate to zero:
1. Standard deduction of Rs. 50,000 under section 16(ia) of IT Act.
2. Deduction under section 80C of IT Act of upto Rs. 1,50,000 towards payments made to Life Insurance Premium, Provident Fund, National Savings Certificate, Housing Loan Principal, etc.
3. Deduction under section 80CCD (1B) of IT Act of Rs. 50,000 on contribution to National Pension Scheme notified by Central Government
4. Deduction under section 80D of the IT Act of Rs. 25,000 (Rs. 50,000 in case of senior citizen) towards payments made to Health Insurance Premium.
5. Deduction under section 24(b) of the IT Act with regards to interest on housing loan upto Rs. 2,00,000 pa whereas the repayment of the principal component of the loan could be claimed as deduction u/s 80C as aforementioned.
After claiming all the deductions available to the salaried person, if the total income of the taxpayer is upto Rs. 5,00,000, then such taxpayer would be eligible to claim rebate under section 87A of IT Act of upto Rs. 12,500 pa.
The below illustration provides a brief overview on the tax computation for a gross salary of Rs. 10 lakhs:
| Particulars | Amount (Rs.) | Amount (Rs.) |
| Income under the Head ‘Salary’ | ||
| Gross Salary | 10,00,000 | |
| Less: Standard Deduction u/s 16(ia) | (50,000) | 9,50,000 |
| Income from House Property | ||
| Interest Paid/ Payable on Housing loan (assuming on Self occupied property) | (2,00,000) | (2,00,000) |
| Income from other Heads is assumed to be NIL | – | – |
| Gross Total Income | 7,50,000 | |
| Less: Deductions under Chapter VI-A | ||
| Deduction u/s 80C | ||
| LIC premium | 40,000 | |
| Contribution to Public Provident Fund | 70,000 | |
| Tuition Fees of children | 5,000 | |
| Repayment of Housing Loan | 50,000 | |
| Deduction u/s would be restricted to maximum Rs. 1,50,000 | (1,65,000) | (1,50,000) |
| Deduction u/s 80CCD(1B) Contribution to National Pension Scheme | (50,000) | (50,000) |
| Deduction u/s 80D Mediclaim premium paid for | ||
| Self and Spouse | 25,000 | |
| Parents (aged 50 years and above) | 25,000 | (50,000) |
| Net Taxable Income | 5,00,000 | |
| Total Tax @ applicable marginal slab rate of 5% | 12,500 | |
| Rebate u/s 87A (Tax payable or Rs. 12,500 whichever is lower) | (12,500) | |
| Total Tax Payable | NIL |
Apart from the above, salaried taxpayers may also avail exemptions u/s 10 with regards to House rent allowance, leave travel concession, leave encashment, etc. depending upon their salary components as specified in their CTC. The limits for such deductions would generally be computed based on certain salary components such as Basis Salary, Dearness allowance, etc.
Please note that a salaried individual who opts for the new proposed tax regime, having an income of Rs. 700,000 (i.e. after a standard deduction of Rs. 50,000) will have NIL tax liability.
Note: Every salaried individual would have the option of choosing between the old and new tax regime and going forward for Financial Year 2023-24, it is announced that the proposed new tax regime would be the ‘default’ tax regime.
Theoretically, it is possible to pay “0” tax on an income of ₹10L. Even if the salary is ₹12L, tax payable can be brought down to “0”.
How can one save tax on a salary above ₹10 lakh? – The ideal way to save taxes is to take advantage of various tax saving deductions and tax saving expenses. The idea here is to bring down the taxable income to ₹5L wherein section 87A is triggered and a taxpayer gets the relief under it.
Which tax regime can help deduct the tax amount to zero on ₹10 lakh salary or above? – The old tax regime is the one which can bring down the tax payable to “0” by deducting from the taxable income which is ₹10L. Under the new tax regime there is a very limited scope to reduce from the taxable income which is nearing or at ₹10L.
| Salary Earning | ₹10 lakh – Salary | ₹12 lakh |
| Name of deduction | ||
| Std Deduction – Given By Default to all salaried employees | -50,000.00 | -50,000.00 |
| 9,50,000.00 | 11,50,000.00 | |
| Home Loan interest on self occupied property under section 24(b) Max Dedn – ₹2,00,000.00 | -2,00,000.00 | -2,00,000.00 |
| 7,50,000.00 | 9,50,000.00 | |
| 80C – Max deduction of 1,50,000 | -1,50,000.00 | -1,50,000.00 |
| 80D – Medical Insurance for Self 25,000 + Medical Insurance for parents 25,000 (Non Sr Citizen) | -50,000.00 | -50,000.00 |
| 80CCD(1B) – Contribution to NPS by self – Max Deduction ₹50,000 | -50,000.00 | -50,000.00 |
| 5,00,000.00 | 7,00,000.00 | |
| 80EEB – (Interest on loan paid to acquire electric vehicle) – Max Deduction ₹1,50,000 | – | -1,50,000.00 |
| 5,00,000.00 | 5,50,000.00 | |
| 80CCD(2) – Employer contribution to NPS Max 10% of basic salary | – | -50,000.00 |
| Taxable Income | 5,00,000.00 | 5,00,000.00 |
| Tax on the income | 12,500.00 | 12,500.00 |
| Less: 87A rebate | -12,500.00 | -12,500.00 |
| Tax payable | NIL | NIL |
Further income reduction is still possible if LTA and HRA has been taken
Since the announcement related to ‘Zero Tax For Income Up To Rs. 7.5 Lakhs’ under the new tax regime in the Budget 2023, it has become one-of-the most talked about topics and has also been covered by most news channels. However, when it comes to the benefits related to ‘Zero Tax’, even the old tax regime is no less than the new one.
Though it has not been in the limelight, but even the old tax regime allows you to claim the following deductions and bring down your tax liability to Zero if your income is up to Rs. 10 Lakhs;
• Standard Deduction of Rs. 50,000/-
• PT (Professional Tax) – Rs. 2,500/-
• Deductions Under 80C – Rs. 1,50,000/-
• Interest on SOP – Rs. 2,00,000/-
• Additional NPS – Rs. 50,000/- and
• Deduction For Mediclaim Under 80D – Rs. 50,000/-
Using the maximum capping under the mentioned deductions, you can bring down your net taxable income to Rs. 5 Lakhs and thus, also reduce your tax amount to zero under the old tax regime.
Source: https://www.livemint.com/money/personal-finance/income-tax-calculator-how-to-pay-zero-tax-on-a-gross-salary-of-rs-10-lakh-11676122663477.html
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