Tax planning is important in maximising your take-home pay. This is especially true in case of the new income tax slabs introduced in the Budget. The proposed changes allow individuals earning up to ₹12 lakh to legally pay zero tax, which helps salaried employees a lot.
Here are some ways you can use to navigate through the regulations:
Understanding the New Tax Slabs
The revised income tax slabs under the new regime are as follows:
- Income up to ₹4 lakh: Nil tax
- Income between ₹4 lakh and ₹8 lakh: 5%
- Income between ₹8 lakh and ₹12 lakh: 10%
- Income between ₹12 lakh and ₹16 lakh: 15%
- Income between ₹16 lakh and ₹20 lakh: 20%
- Income between ₹20 lakh and ₹24 lakh: 25%
- Income above ₹24 lakh: 30%
The basic exemption limit is raised from ₹3 lakh to ₹4 lakh which is a significant change. This means that individuals earning up to this amount will not pay any tax.
Key Deductions for Tax Savings
To ensure you pay zero tax on a salary of more than ₹10 lakh, there are two primary deductions you can utilise:
Standard Deduction
According to the new tax regime, a standard deduction of ₹75,000 for salaried individuals is allowed. This deduction can be processed without any documentation. Considering your salary is in the range of ₹12 lakh, then applying this deduction reduces your income from ₹12 lakh to ₹11.5 lakh, still falling under the NIL bracket.
For a salary that falls into the ₹ 16-20 lakh bracket, applying the standard deduction of ₹ 75000 reduces the taxable income to ₹15.25 lakh and ₹19.25 lakh.
At this income level, your taxable amount moves beyond the basic rebate limits and spans across progressive tax slabs:
- ₹0 to ₹4 lakh: Nil
- ₹4 lakh to ₹8 lakh: taxed at 5%
- ₹8 lakh to ₹12 lakh: taxed at 10%
- ₹12 lakh to ₹16 lakh: taxed at 15%
- ₹16 lakh to ₹20 lakh: taxed at 20%
For instance, on a ₹18 lakh salary, applying the ₹75,000 standard deduction brings your taxable income down to ₹17.25 lakh. This results in a base tax liability of ₹1,45,000 (plus 4% health & education cess), demonstrating how the standard deduction continues to lower your total taxable base even in higher income brackets.
National Pension System (NPS) Contributions
If you invest in National Pension System (NPS), it can offer substantial tax benefits. Under Section 80CCD(2), if your employer contributes to your NPS account, there is no monetary limit on deductions as long as it does not exceed 10% of your basic salary plus dearness allowance (DA) under the old regime or 14% of your basic salary plus dearness allowance under the new regime. It is subject to a ceiling of Rs. 7.50 lakhs.
Additional Considerations
For individuals whose income slightly exceeds ₹12 lakh (up to ₹12.75 lakh), marginal relief provisions ensure that the additional tax burden does not disproportionately affect taxpayers making minor increases in income. This means that even if your income is just above ₹12 lakh, you can still manage your tax liability effectively.
Conclusion
The Budget reforms have provided an excellent opportunity for salaried individuals to optimise their tax liabilities legally. You can easily leverage the standard deductions and NPS contributions to significantly bring down your taxable income. This can potentially help you pay zero taxes on an annual salary of up to ₹12 lakh. Staying informed about these changes and planning accordingly will ensure you maximise your savings while complying with the law.
Secure your tomorrow by starting your retirement planning today with UTI Pension Fund.
