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Clever planning can make even Rs 10 lakh income fully tax free: Here’s how

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With less than two weeks left for the Budget to be announced, taxpayers are hoping for some relief from the Finance Minister. Many are hoping that the basic exemption will be raised from the current Rs 2.5 lakh, while many others want the tax slabs to be rejigged so that their tax liability comes down. Even the super rich may be hoping that the surcharges imposed on their tax will be lifted.

Even as speculation is rife, the existing tax provisions give ample opportunity to the smart taxpayer to bring down his tax. In fact, a person with a taxable income of even more than Rs 10 lakh can escape the tax net. Here’s how. Let us assume the person has a total income of Rs 10 lakh from salary and Rs 20,000 interest income. First, there is a standard deduction of Rs 50,000 for salaried individuals. This will reduce the taxable income to Rs 9.7 lakh.

Then come the tax-saving investments under Sec 80C, which can reduce taxable income by up to Rs 1.5 lakh. Another Rs 50,000 can be reduced by investing in the NPS under Sec 80CCD(1b). Together these two deductions will reduce the taxable income to Rs 7.7 lakh. The home loan deduction will take away another big chunk from the total taxable income. If the taxpayer is living on rent, he can claim exemption for HRA. Let us assume the home loan or HRA reduces the taxable income by Rs 2 lakh, taking the net taxable income to Rs 5.7 lakh. Medical insurance has come into focus after Covid. A taxpayer below 60 can claim a deduction of up to Rs 25,000 for health insurance premium. He can separately claim deduction of up to Rs 50,000 paid for health insurance of senior citizen parents. Given the high cost of insuring senior citizens, that limit is easily breached. If both deductions are claimed, the taxable income of the individual falls to Rs 4.95 lakh.

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This is a crucial threshold. If the taxable income is below Rs 5 lakh, the taxpayer becomes eligible for full tax rebate under Section 87A. In other words, no tax is payable if the net taxable income is below Rs 5 lakh.

Intelligent planning allows a taxpayer to avail of all the deductions he is legally entitled to. The government extends these deductions for the financial well being of the taxpayer. The tax savings increase his surplus while the investments help in creating long-term wealth.

(The writer is Co-founder and CEO of tax filing portal Taxspanner.com.)

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