Every salaried employee would be subject to taxation based on the effective slab rates on his or her total income falling under the old or new tax regime.
Because income tax is calculated using numerous tax slabs after various deductions, salaried personnel should file their income tax returns at the start of the fiscal year 2023–2024. Therefore, tax preparation must begin at the start of a new fiscal year. New income tax rates and slabs have been proposed in Finance Bill 2023 under the New Tax Regime.
The FM increased the tax exemption limit under the new tax regime from 2.5 lacks to 3 lacks, and a standard deduction of 50,000 was introduced under the new tax regime, which was previously only available under the old tax regime. These were the two major announcements made in the Union Budget for 2023–24. However, these modifications will become effective for AY 2024–2025 starting next year. Do salaried employees know that if they earn a gross salary of Rs. 10 lakhs in a fiscal year, they can lower their effective tax rate to zero? Let’s find out from our expert:
Dr. Suresh Surana, Founder, RSM India says
Employees must effectively use the available deductions and exemptions under the IT Act to maximize their tax planning. To achieve a 0% effective tax rate, any salaried individual with a gross salary of Rs. 10 lakhs may deduct the following expenses that were frequently claimed under the previous tax system:
The IT Act's section 16(ia) standard deduction of Rs. 50,000.
- A deduction of up to Rs. 1,50,000 is allowed under Section 80C of the Income Tax Act for payments made for life insurance premiums, provident fund contributions, certificates of national savings, the principal on housing loans, etc.
- The Central Government has announced a deduction of Rs. 50,000 under section 80CCD (1B) of the IT Act for contributions to the National Pension Scheme.
- A deduction of Rs. 25,000 (or Rs. 50,000 in the case of a senior person) for payments made towards health insurance premiums under section 80D of the IT Act.
- Housing loan interest is deductible under section 24(b) of the IT Act up to Rs. 2,000 000 per year, however repayment of the principal portion of the loan is deductible under section 80C.
If the taxpayer's total income is up to Rs. 5,00,000 after taking all the deductions that are available to salaried individuals, then the taxpayer is qualified to apply for a refund under section 87A of the IT Act of up to Rs. 12,500 every year.
CA Vitesh Waikar, Sr. Tax Consultant at Fintoo
Since the Budget 2023 announcement regarding "Zero Tax for Income Up To Rs. 7.5 Lakhs," it has become one of the most talked-about subjects and has been reported by most news outlets. However, the previous tax system was just as beneficial as the new one when it came to "Zero Tax" benefits.
Even though it hasn't received much attention, the previous tax system still permits you to deduct the following expenses and reduce your tax obligation to zero if your income is up to Rs. 10 lakhs;
- Standard Deduction of Rs. 50,000/-
- PT (Professional Tax) – Rs. 2,500/-
- Deductions Under 80C – Rs. 1,50,000/-
- Interest on SOP – Rs. 2,00,000/-
- Additional NPS – Rs. 50,000/- and
- Deduction For Mediclaim Under 80D – Rs. 50,000/
You can lower your net taxable income to Rs. 5 Lakhs using the maximum capping allowed by the aforementioned deductions, which will also result in a tax reduction to zero under the previous tax system.
