Income Tax Rule: The central government has recently announced a crucial update regarding the income tax structure, offering considerable relief to the middle class. In the Union Budget presented on February 1 by Finance Minister Nirmala Sitharaman, it was specified that income up to ₹12 lakh would be completely tax-free, providing a significant opportunity for taxpayers.
Income Tax Rule: Save Income Tax on Earnings Up to ₹18 Lakh
Under the latest Union Budget provisions, individuals can enjoy a tax exemption on income up to ₹12 lakh. In addition, salaried individuals are entitled to a standard deduction of ₹75,000, which effectively brings the total tax-free salary to ₹12.75 lakh. This leaves many wondering, how can those with a salary exceeding ₹12.75 lakh minimize their tax obligations?
Fortunately, it is indeed possible to make income up to ₹18 lakh tax-free through strategic planning within the new tax framework. By employing certain tactics, you can optimize your earnings and remain within the tax-exempt limits.
This Trick Will Help You
You may be curious about how someone earning ₹18 lakh can avoid income tax since the official exemption only extends up to ₹12.75 lakh. The answer lies in a strategy known as salary restructuring.
By cleverly restructuring the components of your salary, you can potentially reduce your taxable income to zero. This means that even if your salary amounts to ₹18 lakh, a well-structured salary can ensure you pay no income tax.
How Additional Savings Are Possible
For an employee whose basic salary plus dearness allowance (DA) totals ₹12.75 lakh, there are opportunities for further tax savings through the restructuring of additional salary components.
Numerous allowances are available in a typical salary structure. For instance, contributions toward the National Pension System (NPS) can reach up to ₹1.71 lakh, and a motor car facility worth up to ₹4 lakh can also be part of the salary without incurring taxes. A gift of up to ₹5,000 from the employer is tax-free as well.
Utilizing these provisions, it is feasible for a gross salary of up to ₹18 lakh to become tax-free.
Rules Under Which Tax Can Be Saved
As per Section 80CCD(2) of the Income Tax Act, any employer contributions to the NPS can be exempt up to 14% of the basic salary plus DA. This strategy can allow you to exempt an income of up to ₹1.71 lakh from taxes.
Furthermore, under Section 17(2)(7) in conjunction with Rule 3(7)(iv), gifts from employers of up to ₹5,000 received during a financial year are exempt from tax. There are also deductions available on transport allowances and other qualifying benefits.
New Income Tax Law Coming Soon
To further streamline the income tax processes, a new Income Tax law is anticipated to be introduced. Finance Minister Nirmala Sitharaman is expected to present the new Income Tax Bill soon, which will undergo review by a parliamentary committee.
The bill has already been approved under the leadership of Prime Minister Narendra Modi, signaling upcoming changes in the tax landscape.
Frequently Asked Questions
What is the tax exemption limit under the new income tax rules?
The recent updates state that income up to ₹12 lakh is completely tax-free, with an additional standard deduction bringing the effective limit to ₹12.75 lakh.
Can I make an income of ₹18 lakh tax-free?
Yes, by utilizing salary restructuring strategies and taking advantage of certain allowances, it is possible to make an income of ₹18 lakh tax-free under the new tax regime.
What are the benefits of the National Pension System (NPS) in terms of tax savings?
Contributions to the NPS can qualify for tax deductions under Section 80CCD(2), allowing exemptions up to 14% of basic salary plus DA, up to a maximum of ₹1.71 lakh.
Are gifts received from the employer taxable?
Gifts from the employer worth up to ₹5,000 received during a financial year are tax-exempt under the current income tax regulations.
When will the new Income Tax Bill be introduced?
The new Income Tax Bill is expected to be presented shortly by Finance Minister Nirmala Sitharaman, with the bill already approved by the Prime Minister. Further details will follow after it has been reviewed by the parliamentary committee.
