The common perception is that individuals earning up to Rs 15 lakh annually cannot completely save on taxes. However, if planned wisely, one can pay zero tax even with a yearly income of Rs 15 lakh. In this article, we look at how to achieve that.
Firstly, by utilising the basic exemption limit offered by the income tax department, you can reduce your tax liability. For the financial year 2023-24, this exemption limit stands at Rs 2.5 lakh for regular taxpayers. So, the initial Rs 2.5 lakh of your Rs 15 lakh salary can be exempted from any tax.
Secondly, by investing in the deductions allowed utilising under Section 80C of the Income Tax Act, one can save tax on a sum of up to Rs 1.5 lakh. These investments could be in Public Provident Fund (PPF), Employee’s Provident Fund (EPF), National Savings Certificates (NSC), Tax-saving Fixed Deposits, Life Insurance Premiums, School Tuition Fees for Kids, etc.
The newly introduced Standard Deduction enables salaried and pensioned individuals to deduct Rs 50,000 from their taxable income, further reducing the Rs 15 lakh salary. Furthermore, under Section 24(b) of the Income Tax Act, tax benefits are allowed on housing loan interest payments up to Rs 2 lakh.
In addition to this, if you receive House Rent Allowance (HRA) and you live in a rented house, this part of your salary is exempt from tax also. Contributions to the National Pension Scheme (NPS) can also get you additional tax benefits.
Lastly, under 10(14), a range of allowances are exempted like the Leave Travel Allowance. This brings down the taxable salary even more. Also, medical insurance premiums paid for self, spouse, kids and dependent parents can offer tax benefits under Section 80D.
Note: It is assumed that the taxpayer is working in a different city and has a house property in a different city.
To sum up, combining your Rs 2.5 lakh basic exemption, the Rs 1.5 lakh saving under section 80C, standard deduction of Rs 50,000, Rs 2 lakh under Section 24(b), an HRA exemption, and other deductions, your taxable income can be brought down significantly, even to zero if properly optimised.
So, with the right investments, exemptions, and deductions, you can bring your taxable amount to zero, even with a yearly salary of Rs 15 lakh.
However, you must know that every salaried individual’s financial situation is different, and what works for one may not work for another. Therefore, one must consult with a financial advisor to understand the best strategies and ideas in tax planning.