ITR filing: I opted for old tax regime and my taxable income is Rs 10 lakh. How can I reduce my tax to zero?

I am 30-years-old, and have opted for the old tax regime. My taxable income is Rs 10 lakh. I want to understand how I can get my tax outgo down to zero.

Aman

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Reply by Amit Gupta, Managing Director at SAG Infotech

To effectively manage their finances and lower their tax liability, salaried Indians need to plan better. The Income Tax Act provides various deductions and exclusions. By utilising them, individuals can significantly reduce their taxable income and, consequently, their tax payments.

Think about a man who earns a gross yearly income of Rs 10 lakh. A number of deductions were available under the previous tax system that might greatly reduce their taxable income and perhaps result in a zero tax obligation.

The first is the Rs 50,000 standard deduction, which is available to all salaried workers. Regardless of specific expenses or investments, this deduction lowers taxable income overall.

Section 80C of the Income Tax Act provides a significant additional deduction of up to Rs 1.5 lakh. The employee provident fund (EPF), public provident fund (PPF), national savings certificates (NSC), child tuition fees, and principal repayment on a house loan are just a few of the assets and expenses that qualify for this deduction. By effectively utilising this deduction, people can reduce their taxable income.

Under Section 80D, people may also deduct the cost of their health insurance premiums. Self, spouse, and dependent children may deduct up to Rs 25,000 each. The upper limit increases to 50,000 for senior citizens. This deduction gives them financial security by lowering their taxable income as well.

By contributing to the National Pension Scheme (NPS), individuals can also take advantage of Section 80CCD(1B) deductions. This allows for an additional deduction of up to Rs 50,000, further reducing taxable income.

Finally, Section 24(b) allows for home loan interest deductions. If the individual owns a self-occupied property, they may be entitled to deduct up to Rs 2 lakh for the interest portion of the mortgage, further reducing their taxable income.

Properly applying these deductions may reduce individuals’ taxable income to Rs 5 lakh or less. People who have a combined income of up to Rs 5 lakh may also be eligible for a refund under Section 87A. Taxes on this refund might total up to Rs 12,500.

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Even when the new tax system offers lower tax rates, it needs to be kept in mind that there are many options under the previous system. That can lessen your tax liability through deductions and exclusions. It is also important that each person should carefully assess and contrast the advantages of both systems depending on their own situation and financial goals.

For instance, let's summarise the tax computation for this example:

Gross Salary: Rs 10,00,000

Less: Standard Deduction: Rs 50,000

Income from House Property (Interest on Home Loan): Rs 2,00,000 (assumed for a self-occupied property)

Total Gross Income: Rs 7,50,000

Less: Deductions under Section 80C: Rs 1,50,000

Less: Deduction under NPS Section 80CCD(1B): Rs 50,000

Less: Deduction under Section 80D: Rs 50,000

Net Taxable Income: Rs 5,00,000

Tax on the income at the applicable marginal slab rate of 5%: Rs 12,500

Less: Rebate under Section 87A (Rs 12,500 or tax payable, whichever is lower): Rs 12,500

Total Tax Payable: NIL

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By leveraging the available deductions and exemptions, individuals with a gross salary of Rs 10 lakh can effectively reduce their tax liability to zero.

Consultation with a tax specialist or financial advisor is advised to maximise tax planning and ensure compliance with tax laws. They might provide customers with individualised guidance, point out allowable deductions, and help them make informed choices that are consistent with their financial objectives.

In summary, effective tax planning is essential for managing the finances of Indians who earn a living from a salary. Individuals might significantly reduce their taxable income by using the deductions and exemptions offered under the previous tax system, potentially resulting in a zero tax obligation. Getting qualified counsel and staying up to speed on tax legislation is essential to maximise tax savings while retaining compliance with statutory laws.

(Views expressed by the investment expert are his/her own)

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