Income Tax Calculator: How To Pay Nil Tax On Gross Salary Of ₹10 Lakh?

The two major announcements made in the Union Budget for 2023-24 were that the Finance Minister increased the tax exemption limit under the new tax regime. 2.5 Lakh onwards 3 lakhs and that a standard deduction 50,000 was introduced under the new tax regime, which was earlier available only under the old tax regime. However, these changes will be effective from the next year i.e. assessment year 2024-25. Do salaried individuals know that they can reduce their effective tax rate to nil if they earn a gross salary of Rs. 10 lakhs in a financial year? We’ll find out from our experts.

Dr. Suresh Surana, Founder, RSM India

Every salaried employee will be liable to pay tax on his total income (i.e. gross total income less eligible deductions) at the marginal slab rates. Thus, for a salaried taxpayer, his salary income will be a major component, he will have to take into account any other income such as interest income from banks, rental income, etc. for the purpose of computing his tax. Salaried individuals with no other major source of income have to face not only rising inflation but also rising cost of living. Therefore, in order to optimize their tax planning, employees need to efficiently utilize the deductions and exemptions available under the IT Act. Accordingly, any salaried individual with gross salary of Rs. 10 lakh can claim deductions normally claimed under the old tax regime to bring down their effective tax rate to nil:

1. Standard deduction of Rs. 50,000 under section 16(ia) of the IT Act.

2. Deduction under section 80C of the IT Act up to Rs. 1,50,000 for payment of life insurance premium, provident fund, national savings certificate, home loan principal, etc.

3. Under section 80CCD(1B) of the IT Act, a deduction of Rs. 50,000 on contribution to the National Pension Scheme notified by the Central Government

4. Deduction under section 80D of the IT Act of Rs. 25,000 (Rs. 50,000 in case of a senior citizen) towards payment of health insurance premium.

5. Deduction under section 24(b) of the IT Act in respect of interest on housing loan up to Rs. 2,00,000 per annum while the repayment of the principal component of the loan can be claimed as a deduction under the aforesaid section 80C.

After claiming all the deductions available to a salaried individual, if the total income of the taxpayer does not exceed Rs. 5,00,000, then such taxpayer will be eligible to claim exemption under section 87A of the IT Act up to Rs. 12,500 Pa.

The illustration below provides a brief overview on tax computation for gross salary of Rs. 10 lakhs:

In addition to the above, salaried taxpayers can avail exemption under section 10 in respect of House Rent Allowance, Leave Travel Concession, Leave Encashment etc. based on the salary components specified in their CTC. The limit of such deductions will generally be calculated on the basis of certain salary components such as base salary, dearness allowance, etc.

Please note that a salaried individual who opts for the new proposed tax regime, whose income is Rs. 700,000 (i.e. after standard deduction of Rs. 50,000) will have nil tax liability.

Comment: Every salaried individual will have the option to choose between the old and the new tax regime and going forward for the financial year 2023-24, it is announced that the proposed new tax regime will be the ‘default’ tax regime.

Archit Gupta, Founder and CEO, Clear

Theoretically, it is possible to pay “0” tax on an income of 10L. regardless of salary 12L, the tax payable can be reduced to “0”.

How can one save tax on salary more than this 10 lakh? – The ideal way to save tax is by availing various tax saving deductions and tax saving expenses. The idea here is to bring down the taxable income 5L wherein section 87A is triggered and a taxpayer gets relief thereunder.

Which tax regime can help reduce the tax amount to zero? 10 lakh salary or above? – The old tax regime is one that can bring down the tax payable to “0” by deducting it from taxable income that is 10L. Under the new tax regime there is very limited scope to reduce taxable income which is close to or 10L.

Further reduction in income is still possible if LTA and HRA are taken into account

CA Vitesh Vaykar, Senior Tax Consultant at Fintu

Since the announcement regarding zero tax on income up to Rs. 7.5 Lakhs under the new tax regime in Budget 2023, it has become one of the most talked about topics and has been covered by most of the news channels as well. However, when it comes to the benefits associated with ‘zero tax’, the old tax system is no less than the new one.

Though it has not been in limelight, but the old tax regime also allows you to claim the following deductions and reduce your tax liability to nil if your income is up to Rs. 10 lakhs;

• Standard deduction of Rs. 50,000/-

• PT (Professional Tax) – Rs. 2,500/-

• Deduction under 80C – Rs. 1,50,000/-

• Interest on SOP – Rs. 2,00,000/-

• Additional NPS – Rs. 50,000/- and

• Deduction for Mediclaim under 80D – Rs. 50,000/-

By using the maximum capping under the mentioned deductions, you can reduce your net taxable income by Rs. 5 lakh and thus, reduce your tax amount to nil under the old tax regime.