“The hardest thing in the world to understand is the income tax,” said Albert Einstein.
While the statement isn't entirely accurate, it holds some truth. Many people in India don’t fully understand taxes and end up overpaying. Understanding how to navigate India's complex tax system can save you thousands. In this article, we'll unveil the secrets to maximizing your deductions and minimizing your tax liability.
Let's see an example:
Case 1
Imagine you earn a salary of ₹10 lakh per year and choose not to claim any deductions. In this scenario, opting for the new tax regime is generally advisable. However, under this regime, you would end up paying a total tax of approximately ₹78,000. That's almost the cost of a brand-new iPhone, essentially spent on taxes.
Now let’s look at a different case.
Case 2
Consider the same salary of ₹10 lakh, but this time you take full advantage of all available deductions. By strategically claiming these deductions, sticking to the old tax regime becomes more beneficial. In this case, your total tax liability can be reduced to ₹0. This means you could save that ₹78,000 every year!
Excited to know how to bring this amount to ₹0? Read along.
Below, we’ll explain all the possible deductions you can take to reach the zero tax mark.
Rebate under 87A
For the first ₹5,00,000, you are liable to pay a tax of ₹12,500, but the Income Tax Act gives you the complete amount as a rebate under 87A. So you end up paying 0 taxes if your taxable income is below ₹5,00,000.
But the problem is that you earn a salary of ₹10 lakh, so how do you bring this down to ₹5 lakh to pay zero taxes?
Note: You’ll be paying zero tax if you are above the age of 60 and earning ₹10 lakh. For people below 60, the figure would be ₹9.75 lakh, which is still great. Isn’t it?
Standard Deduction
Next, you’ll get a standard deduction of ₹50,000 from your salary under Section 16(ia).
Section 80C & 80CCD
You can get a deduction of ₹1,50,000 under Section 80C (investments like PPF and ELSS Mutual Funds).
Also, you can claim a deduction of up to ₹50,000 if you are saving your money in NPS under Section 80CCD.
Home Loan
Next comes Section 24(b). If you have taken a home loan and are paying installments, you can claim a deduction of ₹2,00,000.
If you don't own a house, fret not. You will get a deduction for House Rent Allowance for the amount of rent you pay to your landlord.
Health Insurance
Lastly, deductions for health insurance premiums are capped at ₹25,000 for normal citizens and ₹50,000 for senior citizens.
By summing these up, you’ll be left with a net taxable income of ₹5,00,000, which, as you know, will carry 0 tax.
Even if your net taxable income is zero, you are still liable to file your ITR.
If you want to calculate your income tax liability, you can use the JJ Tax’s Tax Calculator or contact us for personalized assistance from a tax expert for your ITR filing and related queries.
Hope you liked today’s article, and we’re sure this will help you save some of your hard-earned money. Let’s meet again in your inbox soon. Until then, take care and stay safe.