This article provides tips on how to pay zero tax for income up to ₹12 lakhs in India, including investment strategies and smart use of deductions.
As an Indian citizen, you are liable to pay taxes on your income, but did you know that you can legally pay zero tax for income up to 12 lakhs? Yes, that’s right. With proper planning and execution, you can avoid paying taxes on your hard-earned money.
In this article, we’ll discuss various ways to reduce or eliminate your tax liability and help you understand how to pay zero tax for 12 lakhs.
How to Save Tax on 12 Lakhs Salary, Understand the Tax Slab and Deductions
Before we dive into the details of tax-saving methods, it is essential to understand the tax slab and deductions applicable to your income. The current tax slab for individuals below the age of 60 years is:
| Up to 2.5 Lakhs | No Tax |
| Between 2.5 Lakhs to 5 Lakhs | 5% Tax |
| Between 5 Lakhs to 7.5 Lakhs | 10% Tax |
| Between 7.5 Lakhs to 10 Lakhs | 15% Tax |
| Between 10 Lakhs to 12.5 Lakhs | 20% Tax |
| Above 12.5 Lakhs | 30% Tax |
Now, let’s take a look at the deductions available to an individual:
- Section 80C: Investments in schemes such as EPF, PPF, NPS, ELSS, etc. up to 1.5 lakhs are eligible for deduction.
- Section 80D: Premiums paid for medical insurance of self, spouse, and dependent children are eligible for deduction up to ₹ 25,000.
- Section 80TTA: Interest earned on a savings bank account up to ₹10,000 is eligible for deduction.
- Section 80G: Donations made to approved charitable organizations are eligible for deduction.
These are just a few examples of the deductions available to individuals. Many more deductions are available, which can help you reduce your tax liability.
How to Pay Zero Tax for Income Up to 12 Lakhs?
One of the most common and effective ways to reduce tax liability is by investing in tax-saving instruments. As mentioned, investments in schemes such as EPF, PPF, NPS, and ELSS are eligible for deduction under Section 80C of the Income Tax Act. Here’s a brief overview of each of these schemes:
Employee Provident Fund (EPF)
This scheme is available to salaried employees and is an excellent way to save for retirement. Contributions made to EPF are eligible for deduction under Section 80C, and the interest earned is tax-free. The current interest rate is 8.5%.
Public Provident Fund (PPF)
This scheme is available to all Indian citizens and is an excellent way to save for long-term goals. Contributions made to PPF are eligible for deduction under Section 80C, and the interest earned is tax-free. The current interest rate is 7.1%.
National Pension Scheme (NPS)
This scheme is available to all Indian citizens and is an excellent way to save for retirement. Contributions made to NPS are eligible for deduction under Section 80C; an additional deduction of up to ₹50,000 is available under Section 80CCD(1B). The interest earned is tax-free, and the returns are market-linked.
Equity-Linked Savings Scheme (ELSS)
This scheme is a type of mutual fund that invests in equities and is eligible for deduction under Section 80C. The returns are market-linked, and the lock-in period is three years.
Apart from the above-mentioned schemes, there are many other tax-saving instruments such as tax-saving fixed deposits, Senior Citizen Savings Schemes, and National Savings Certificates, which can help you reduce your tax liability. Understanding the risk-return profile of each of these schemes is essential before investing.
Zero Tax for 12 lakhs – Utilise Your House Rent Allowance(HRA)
If you are a salaried employee and receive a House Rent Allowance (HRA) as a part of your salary, you can use it to reduce your tax liability. You can claim exemption on HRA based on the following conditions:
- You should be paying rent for a house.
- The rent paid should be more than 10% of your basic salary.
- If you live in a metro city, then you can claim up to 50% of your basic salary as an exemption. If you live in a non-metro city, then you can claim up to 40% of your basic salary as an exemption.
You must provide proof of rent paid, such as rent receipts, lease agreement, etc., to claim the exemption.
Opt for NPS Tier II Account
As mentioned earlier, NPS is an excellent way to save for retirement and reduce your tax liability. Apart from the Tier I account, which is mandatory for salaried employees, you can also opt for a Tier II account.
The Tier II account is voluntary and allows you to invest and withdraw money at your convenience. Although the Tier II account contributions are not eligible for deduction under Section 80C, the gains earned are tax-free. You can withdraw money from the Tier II account anytime, and there is no lock-in period.
Zero Tax on 12 lakh Income – Use the LTA Benefit
The Leave Travel Allowance (LTA) is an allowance for salaried employees to travel within India. You can claim exemption on LTA twice in a block of four years. The current block is 2018-2021. You can claim an exemption on the fare paid for your travel within India.
However, you must provide proof of travel, such as travel tickets, boarding passes, etc., to claim the exemption.
Split Your Income
If you have a family member with no or low income, consider splitting your income. For example, you can gift money to your spouse or invest in their name. The income earned from these investments will be taxed separately and can help reduce your tax liability.
However, ensuring that the gifts are genuine and do not attract any scrutiny from the Income Tax department is essential.
Conclusion
In conclusion, how to pay zero tax for income up to 12 lakhs is possible with proper planning and execution. You can reduce or eliminate your tax liability by understanding the tax slab and deductions, investing in tax-saving instruments, utilizing HRA and LTA benefits, opting for an NPS Tier II account, and splitting your income.
It is essential to consult a financial advisor or tax expert before making any investment or tax-saving decision to ensure that it aligns with your financial goals and risk appetite. With these tips, you can save more money and enjoy the benefits of your hard-earned income.
Vakilsearch can assist you in filing your taxes, understanding tax laws and regulations, and providing personalized financial advice to help you maximize your tax-saving opportunities and minimize your liability.
FAQ:
1. How to pay zero tax for income up to 10 lakhs?
Under the old regime, you have the opportunity to achieve a tax-free income of up to 10 lakhs by claiming tax deductions and making investments in tax-saving instruments.
2. How to Save Tax On 12 Lakhs Salary
To save tax on a salary of 12 lakhs, consider investing in tax-saving instruments like PPF, NPS, and ELSS. Optimize deductions under Section 80C, 80D, and other applicable sections to reduce your taxable income.
