Is it possible to pay 0 income tax on Rs 15 lakh annual salary? Know how it is through expert calculations

Tax Saving Strategy: The income tax filing deadline of July 31, 2024, is near. Taxpayers are rushing to file their income tax in time. If they miss the deadline, they are likely to face a monetary penalty. This is also the time of year when you assess how you could have saved more tax by investing in tax saving schemes. Sometimes, you have prior knowledge of tax saving options. At other times, you have the intent to save tax, but run short of knowledge. Specially, if you follow the old tax regime and fall in the salary bracket of near or over Rs 15 lakh per annum, you may feel that it is impossible to bring your income tax to zero with such a salary package.

But the Income Tax Act, 1961, provides many options to save tax for taxpayers following the old tax regime.

Not just Section 80C deductions of up to Rs 1.50 lakh in a financial year, there are other options, using which you can bring your income tax liability to zero even in an annual salary package of over Rs 15 lakh.

For that, you need some restructuring of your salary, which you can do with the help of your company HR; you need to claim maximum deductions; and you need to invest in tax saving schemes. Aastha Dhowan, Partner, Direct Tax, N.A. Shah Associates, eases the problem for you. She tells how you can bring your tax liability to zero even if your annual salary is over Rs 15 lakh.

"Every salaried individual is subject to tax as per slab rate depending on his/her total taxable income, including other income, i.e., interest, dividends, rent, etc. A salaried individual can select the tax regime, i.e., old or new, whichever is more beneficial to him/her. Employees need to efficiently utilise the available deductions and exemptions under the IT Act in order to bring their taxable income below Rs. 5,00,000 (by opting for the old tax regime), so there will be no tax after considering rebate u/s 87A up to Rs 12,500," says Aastha.
For taxpayers following the old tax regime, she has a number of general deductions available to salaried employees (assuming they don't have any other income):

1. A standard deduction of Rs 50,000 under Section 16 of the Income Tax Act.

2. Deduction under Section 80C of the IT Act of up to Rs. 1,50,000 towards payments made to life insurance premium, provident fund, national savings certificates, housing loan principal, children's school fees, etc.

3. Deduction under Section 80CCD (1B) of the IT Act of Rs 50,000 on contribution to National Pension Scheme (NPS) notified by the central government.

4. Deduction under Section 80D of the IT Act up to Rs 25,000 towards payments made to Health Insurance Premium for self, spouse, and children. Additionally, Rs. 50,000 can be claimed in respect of the medical insurance premium paid for senior citizen parents.

5. Deduction under Section 24(b) of the IT Act with regards to interest on housing loan up to Rs 2,00,000 per year. 

She says, apart from the above, other exemptions such as HRA, LTA, children allowance, meal allowance, reimbursement towards mobile bills, etc. are also available to employees selecting the old regime depending on the component of their salary.

For example an employee having Gross Salary 15,00,000/- can structure their salary as under pay zero tax on it after opting for old tax regime.

Chart Courtesy: Aastha Dhowan, Partner, Direct Tax, N.A. Shah Associates 

Can taxpayers in the new tax regime save tax? Aastha says, "Employees following the new tax regime need to bring their income down to Rs 7,00,000 after claiming a standard deduction of Rs 50,000. Certain deductions and exemptions, such as HRA , LTA, etc, are not available in case of new tax regime. Salaried employee can claim deduction in respect of interest paid on housing loan up to Rs 2,00,000 in new tax regime.