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Income tax calculator:Paid taxes per your income often bothers people. That is why people seek many avenues for tax savings. But Even if your salary is Rs. 12 lakh per annum, you can save a lot of money through proper planning and smart tax avoidance measures. This financial year you can through smart planning avoid paying any taxes without assistance from a chartered accountant. So let us understand how to do tax-saving with the help of some smart tips.
New financial year
As from April 1, a new financial year has commenced. Now, as expected, taxpayers have started strategizing from filing their taxes to looking for tax-saving options. Are you aware that it is possible to save tax even with an annual salary of Rs 17 lakh? The question on everyone’s mind would be how. Strategic tax planning along with tax exemption provisions like section 80C, 80D, HRA, and NPS can make this possible. Aided by the aforementioned provisions, proper planning can facilitate reducing the income of Rs 17 lakhs to zero. Let's discuss what needs to be done and how this can be achieved.
Tax free planning
Understanding the CTC Breakup is always considered to be the most important thing for employees for savings, but for freelancers, this is of less importance. This becomes ever more crucial in regards to tax savings. If the basic salary tends to be 30% of the CTC, and you are increasing it to 40%, then there is always an incremental impact on other allowances, deductions and tax exemptions. Under the new tax structure, if there is thoughtful tax planning, taxable income can be greatly reduced. Even a salary of up to Rs 17 lakhs becomes nominal in tax.
Let’s explain how you can save income tax with a smart breakup.
The new tax regime
Considering you picked “new tax regime” as your choice, then standard deduction is certainly going to be a very useful option for you. From the year 2024-25, as per the new regime, employees will be provided standard deduction up to ₹ 75,000. This means that in case of annual income being ₹12 lakh, after deduction the taxable income will be around ₹ 11.25 lakh only. In your case, the most beneficial thing is that the tax will be at a lower rate and overall, the savings for you will be higher. However, the most crucial point is that this deduction is allowed to be claimed without any additional documents and investments on one’s income.
Your salary slip example
Let us presume that your gross salary is in the range of ₹17,24,385 or ₹17,84,981. So, now if you want to split it in 30% and 40% of basic salary format, then the basic salary will come out to be approximately around ₹ 5,17,315 and ₹7,13,992 respectively.
Mobile and Transportation Reimbursement
Let us now focus on mobile and servie transportation reimbursements. In fact, these two items are fixed. So, as an example, let us say mobile reimbursement is set at: ₹50,000 and conveyance reimbursement is set at: ₹2,40,000. In this case irrespective of whether the basic is 30% or 40%, the cap of the allowances will always be the same.
How do we make tax payments NIL
But what is critical to think about is that with proper planning, what if they are moved to a tax-free zone? Yes, it is these confidential tactics that each employed individual must be aware of, so they can make the salary of Rs 17 lakh tax free without extensive paperwork or a lack of documentation or experts
Saving taxes with salary breakup strategies
Let’s now discuss EPF, NPS, and gratuity. This is where true savings on tax might begin. If we take basic to be 30% of the CTC, then the PF figure will be about ₹62,078 and about ₹85,679 at 40% basic. NPS will contribute 14%, which will be ₹72,424 and ₹99,959 respectively. Gratuity also depends upon basic salary which in this case would be ₹24,883 at 30% basic and ₹34,343 at 40% basic. In this, deduct the PF from the total gross gratuity pay. Then the gross at basic 30% would be ₹16,37,424 and at basic 40% would be ₹16,64,959.
Understand the calculation
Per some tax experts, mobile reimbursement can claim tax exempt of approximately ₹ 50,000, while for conveyance reimbursement, it can be up to ₹ 2,40,000. But yes, certain conditions have to be followed. Moreover, if we consider exempting mobile and conveyance reimbursement from gross salary, the net pay could be ₹ 13.47 lakh at 30 percent basic and ₹ 13.74 lakh at 40 percent. Alternatively, if offset standard deduction of ₹ 75,000, then the taxable salary becomes ₹ 12,72,424 at 30% of the basic and ₹ 12,99,959 at 40% of the basic. In other words, upon limiting with the standard deduction with NPS (which is used for tax exemption purpose) contribution, the taxable income stands at only ₹ 12 lakh, which is exceptionally beneficial from a tax perspective. (Disclaimer: This news has been presented considering public information, consult with a professional before filing tax documents)
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