No Tax on Income of Rs. 10 Lakh: A case study


No Tax on Income of Rs. 10 Lakh:

A case study

The general basic exemption limit for individual taxpayers is Rs. 2.50 Lakh. This is Rs. 3 Lakh for senior Citizens & Rs. 5 Lakh for super senior citizens. Even if the basic exemption limit is Rs. 2.50 Lakh is there for most of the taxpayers, still the normal taxpayers with income of around Rs. 10 Lakh could end up with zero tax liability by proper investment & tax planning. To achieve the social economic objectives, the Government has provided various deductions / exemptions to the taxpayers.  With the help of various investments & deductions, taxpayers can reduce the tax substantially.
Section 87A provides the tax rebate to the taxpayer if the income doesn’t exceed Rs. 5 Lakh. As a result, the income tax liability would be zero if the taxpayer is able to reduce its income up to Rs. 5 Lakh. The following tax saving option can be explored by the taxpayers so as to reduce the income below Rs. 5 Lakh.
  1. Housing Loan Interest U/s 24(b):
    An individual can claim deduction up to Rs. 2 Lakh in respect of housing loan taken for purchase or construction of the house property. This deduction against interest on housing loan is admissible under section 24(b) of Income Tax Act.
  2. Section 80C deduction up to Rs. 1.50 Lakh:
    Income Tax Act provides for deduction up to Rs 1,50,000/- u/s 80C. One can claim this deduction by making investment in PPF, ELSS, NSC etc. or paying LIC premium for self or spouse or children. Amongst all these investment options, PPF investment is recommendatory as its interest income is fully exempt from tax apart from deduction u/s 80C in respect of initial contribution. Even Payment of tuition fees for two children or repayment of the principal portion of housing loan is eligible for reckoning this threshold limit of Rs. 1.50 Lakh.
  3. NPS Investment U/s 80CCD(1B):
    There is an additional deduction up to Rs 50,000 which is available u/s 80CCD (1B) of the Income Tax Act if investment is done in the National Pension System (NPS) scheme. This deduction is over and above the deduction of Rs. 1.50 available u/s 80C.
  4. Standard Deduction of Rs. 50,000/-:
    Salaried taxpayers are eligible for standard deduction of Rs. 50,000/- u/s 16(ia) of the Income Tax Act. In case of payment of any amount to family members against services rendered for the business of the firm/family, the title/classification of the amount as Salary vis a vis Commission or fees for professional services etc could play an important role from tax planning perspective.
  5. Mediclaim Policy:
    Payment against health insurance policy offers deduction u/s 80D of the Income Tax Act- 1961. Deduction admissible is Rs 25,000/- against policy taken for the health insurance of self, spouse & children. This deduction shall be Rs. 50,000/- if an individual pays health insurance of his senior citizen parents.
  6. Preventive Health Check up deduction:
    Apart from premium of health insurance policy,  deduction in the form of Rs. 5,000/- is also provided u/s 80D towards preventive health check-up. This deduction is subject to the overall cap of Rs. 25,000/- or Rs. 50,000/- as mentioned in section 80D.
  1. Interest on Saving Bank Account U/s 80TTA:
    There are various bank which are offering saving bank product wherein interest rates are almost at par with the FD rates The taxpayers may explore such possibility and can plan in such a way that the benefit of Rs. 10,000/- deduction against bank interest u/s  80TTA is used optimally.
  2. Other Deduction:
    There are few other deductions which can also be availed by the Individual taxpayers and varies from case to case. Taxpayers may explore the possibility of claiming such deduction
a) Deduction u/s 80 DDB is available against medical treatment of self or a dependent in respect of certain specified ailments. The dependent can be spouse, parent or sibling. The amount of deduction admissible is up to Rs. 40,000/- (Rs. 1 Lakh if dependent senior citizen)
b) Interest paid on education loan is also eligible for deduction u/s 80E of the Income Tax Act-1961. The total interest paid will be allowed as a deduction & there is no limit on the maximum amount that is allowed as deduction. It is available only for 8 years starting from the year in which the loan repayment starts.
c) Deduction up to Rs. 1.50 Lakh is available u/s 80EEB towards interest payments of loan taken for purchase of an electric vehicle for personal use.
d) Donations to prescribed trusts and institutions also offer tax benefits under section 80G of the Income Tax Act. Depending upon the organization to whom the donation is done, the deduction could be 50% or 100% of the donation amount.

Though under the old tax regime, the tax liability on Income of Rs. 10 Lakh could be Rs. 1,17,000/-, still it could be reduced to zero by proper planning the exemption & deduction. The above discussion could be summarized as under:
Nature of Deduction
Housing Loan Interest
Rs. 2,00,000/-
Section 80C Deduction towards LIC/ PPF/ NSC etc
Rs. 1,50,000/-
National Pension Scheme (NPS) U/s 80CCD(1B)
Rs. 50,000/-
Mediclaim Policy Payment U/s 80D
[Including Rs. 5000 towards preventive Health Check up]
Rs. 25,000/-
Standard Deduction for Salaried Taxpayers
Rs. 50,000/-
Interest on SB A/c
[It will be Rs. 50,000/- for senior citizens]
Rs. 10,000/-
Donation u/s 80G, 80E, 80EEB, 80DDB, etc
[The deduction under this section could be planned in such a way that the income of the taxpayers is reduced to Rs. 5 Lakh].
Rs. 15,000/-
Total Deduction
Rs. 5,00,000/-


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