Earning Rs 10 lakh per annum? Here's how you can pay zero tax

New Delhi: Taxpayers, still reeling from the repercussions of the pandemic and lockdowns, have high hopes for the next Union Budget 2022-23. One frequent proposal is to increase the basic exemption amount from Rs 2.5 lakh to Rs 5 lakh. Taxpayers have also requested that the Finance Ministry increase the current standard deduction ceiling from Rs 50,000 to at least Rs 1 lakh.

Many people expect that the Finance Minister would restructure tax slabs in order to reduce their tax burden, but this appears unlikely. The development, if it materialise, will be greatly appreciated by taxpayers. Even if it does not, there are numerous provisions in existing tax rules that, if properly utilised, can dramatically lower the tax burden.

Even those earning a robust Rs 10 lakh per year can plan on paying no taxes. Assume a person earns Rs 10 lakh per year in salary and Rs 20,000 in interest. Due to the standard deduction, the yearly income will be lowered to Rs 9.7 lakh taxable income right away.

Section 80C tax-saving investments can further lower taxable income by up to Rs 1.50 lakh. Another 50,000 rupees can be saved by investing in the National Pension Scheme under Section 80CCD (1b). These two deductions reduce the taxable income to Rs 7.7 lakh per year. If you have a home loan, you may be able to deduct a large amount from your taxable income.

Assuming that a home loan or House Rent Allowance (HRA) reduces the taxable income by further Rs 2 lakh, the effective taxable income is now Rs 5.7 lakh. Medical insurance, which has grown increasingly crucial in the aftermath of Covid, can reduce taxable income by another Rs 25,000. A taxpayer may claim an additional Rs 50,000 for insurance for elderly parents. After claiming both of these deductions, the taxable income is Rs 4.95 lakh.

Once the taxable income falls below Rs 5 lakh, it is not taxed because it qualifies for a full rebate under Section 87A. After taking into account all of these deductions, a taxpayer earning Rs 10 lakh per year can effectively decrease his tax liability to nil.