Income Tax Rule: The central government has announced significant relief for the middle class in the recent Union Budget. A crucial announcement made by Finance Minister Nirmala Sitharaman declared that income up to ₹12 lakh will be tax-free, easing the tax burden for many taxpayers. This update, revealed in Parliament on February 1, marks a pivotal change in the approach to income tax in the country.
Income Tax Rule: Save Income Tax on Earnings Up to ₹18 Lakh
Under the latest Union Budget, individuals can enjoy a tax exemption on earnings up to ₹12 lakh. Furthermore, salaried individuals will benefit from an additional standard deduction of ₹75,000. This means salary income can effectively reach ₹12.75 lakh without incurring any income tax.
However, what if your salary exceeds ₹12.75 lakh? How can you avoid paying income tax in such cases?
If you aspire to make an income of up to ₹18 lakh completely tax-free, there are effective strategies available under the new tax regime. Utilizing certain tactics allows individuals to keep their income tax-free even with higher earnings.
This Trick Will Help You
You might be curious about how income up to ₹18 lakh can be made tax-free when the current government stipulates a limit of ₹12.75 lakh. This is achievable through a strategy known as salary restructuring.
By cleverly restructuring your salary components, you can potentially reduce your taxable income to zero. Even with a salary of ₹18 lakh, it is feasible to lawfully avoid income tax if your salary is structured appropriately.
How Additional Savings Are Possible
If an employee has a basic salary plus dearness allowance (DA) totaling ₹12.75 lakh, they can leverage salary restructuring to save on tax. Various salary components offer opportunities for tax benefits.
An employee can contribute up to ₹1.71 lakh towards the National Pension System (NPS). Additionally, certain allowances can include a motor car facility valued at up to ₹4 lakh. Any gift amounting to ₹5,000 received from the employer is also tax-exempt.
By capitalizing on these benefits, it becomes possible to render salaries of up to ₹18 lakh tax-free.
Rules Under Which Tax Can Be Saved
According to Section 80CCD(2) of the Income Tax Act, employer contributions to NPS, which can be up to 14% of both basic salary and dearness allowance, are permitted. By utilizing this provision, income up to ₹1.71 lakh can be exempted from tax.
Moreover, as per Section 17(2)(7) in conjunction with Rule 3(7)(iv), gifts from employers up to ₹5,000 in any financial year are exempt from tax. Tax savings can also apply to transport allowances and other eligible benefits.
New Income Tax Law Coming Soon
To streamline income tax regulations, a new Income Tax law is anticipated to be introduced. Finance Minister Nirmala Sitharaman is slated to present this new Income Tax Bill, which will undergo review by a parliamentary committee shortly.
This bill has already received approval under the oversight of Prime Minister Narendra Modi.
Frequently Asked Questions
Will I really pay no tax on an income of ₹18 lakh?
Yes, through effective salary restructuring and utilizing various tax exemptions, it is possible to make an income of ₹18 lakh tax-free.
What is salary restructuring?
Salary restructuring involves arranging your salary components strategically to maximize tax benefits and reduce your taxable income to zero.
Can I benefit from NPS if my salary is higher than ₹12.75 lakh?
Yes, contributions to the National Pension System (NPS) can provide significant tax deductions, beneficial even for higher salaries.
Are there any other deductions under the new tax regime?
Yes, allowances such as transport allowances, gifts from employers, and specific exemptions can further reduce your taxable income.
When is the new income tax law expected to be implemented?
The introduction of the new Income Tax Bill is expected soon, although specific implementation dates are yet to be confirmed.
