Finance Minister Nirmala Sitharaman announced tax exemption in the budget on Tuesday, 23 July. She increased the standard deduction from Rs 50,000 per annum to Rs 75,000 per annum. Along with this, the tax structure was also revised. This change was made under the New Tax Regime. In such a situation, people are very confused about tax saving that if their salary is Rs 50,000 or Rs 1 lakh, then which tax regime should they choose. Also, how much tax will have to be paid? Let’s understand what the whole math is.
First of all, know that the new tax regime is default since Budget 2023, that is, if you do not select any regime, then the new tax regime will be already selected. In such a situation, if your salary is Rs 50,000, then you do not need to take any tension, because your annual salary is only 6 lakhs. This means that you do not fall in the tax category.
Which tax regime is better for a salary of Rs 1 lakh?
Now let’s come to the salary of 1 lakh… If your salary is 1 lakh rupees monthly, then you can choose either the new tax regime or the old tax regime. However, if you want to pay ‘0’ tax on a salary of 1 lakh, that is, you do not want to pay a single rupee tax, then you will have to select the OLD TAX REGIME, but for this you will have to show some claim, so that you can get tax exemption.
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How will ‘0’ tax be levied on a salary of Rs 1 lakh?
- If you want to pay zero tax on a salary of Rs 1 lakh, then you will have to claim tax exemption on various types of investments and reimbursements. You can also claim conveyance, LTA, entertainment, broadband bills, petrol bills and entertainment or food coupons in reimbursement.
- First let’s talk about LTA. You can avail this benefit twice in 4 years. This includes the fare of the travel plan. This is 10% of your basic salary. This means that on your annual salary of Rs 12 lakh, your basic salary will be Rs 6 lakh annual salary. That means you will get LTA of Rs 60 thousand and you can avail an average annual discount of Rs 30 thousand.
- HRA is paid at the rate of 50% in metro cities and 40% in non-metro cities. The amount that remains after deducting 10% of the basic salary from the total rent can be claimed as HRA. In such a situation, people living in metro cities can claim HRA exemption of Rs 1.80 lakh on the basis of monthly rent of Rs 20,000.
How much discount can I claim in reimbursement?
- On a monthly salary of Rs 1 lakh or an annual salary of Rs 12 lakh, the conveyance allowance is Rs 1-1.50 lakh, which means this amount is completely non-taxable.
- You can claim tax exemption of Rs 700-1000 on monthly broadband bill, that is, tax exemption of Rs 12000 can be claimed annually.
- People earning a salary of Rs 1 lakh are given an entertainment allowance of Rs 2,000 every month, which means you can claim an annual tax exemption of Rs 24,000 under this.
- Many companies give allowance on uniforms, books or petrol bills. Which means you can get a discount of up to 12 thousand rupees annually under this.
- Now you can get tax exemption up to Rs 1.98 lakh under total reimbursement.
How much deduction will be given on investment? (Savings deduction)
- By investing in places like EPF, PPF, Sukanya Samriddhi Yojana, NPS, child’s tuition fees, LIC, home loan principal, you can get tax exemption of Rs 1.5 lakh annually under Income Tax Section 80C.
- You can claim an extra tax exemption of Rs 50,000 by investing in NPS under section 80CCD(1B).
- Under section 80D, you can avail tax exemption of Rs 25,000 on health insurance and Rs 25,000 on parents’ health insurance, that is, you can avail a total tax exemption of Rs 50,000.
- Now the exemption on total investment will be Rs 2.50 lakh.
Now if you add the tax claim then the taxable income will be this much
| Total HRA claim | Rs 1.80 lakh |
| Total Reimbursement | Rs 1.98 lakh |
| Deduction on investment | Total Rs 2.50 lakh |
| standard deduction | Rs 50,000 |
| Exemption under LTA | 30 thousand rupees |
| Total tax exemption | It will be Rs 7.08 lakh. |
Now the total taxable income out of annual income is Rs 12 lakh
Annual salary of Rs 12 lakh – Tax claim of Rs 7.08 lakh = Rs 4.92 lakh
How will 0 tax be levied?
Now another income tax rule will be applicable here. Now your taxable salary is between Rs 2.5 lakh and Rs 5 lakh under the old tax regime. Under the income tax rules, 5 percent tax will be applicable on this, which comes to Rs 12,500. In the old tax slab, a tax rebate of Rs 12,500 is available under section 87A on income up to 5 years. In such a situation, there is no tax on deducting the rebate in income tax (12500- 12500 = 0). In this way, your entire salary will be tax free even on an income of Rs 12 lakh.