Income Tax Rule: In a significant move to benefit the middle class, the central government has announced updates in the Union Budget regarding income tax. On February 1, during a parliament session, Finance Minister Nirmala Sitharaman revealed that income up to ₹12 lakh will be entirely exempt from taxation. This relief offers a major incentive for earners, especially at a time when financial planning is crucial.
Income Tax Rule: Save Income Tax on Earnings Up to ₹18 Lakh
According to the new Union Budget provisions, income up to ₹12 lakh is now free from tax. Additionally, salaried individuals are entitled to a standard deduction of ₹75,000, leading to a total exemption for salary income reaching ₹12.75 lakh. However, if your earnings surpass ₹12.75 lakh, there are still strategies to consider for reducing your tax liabilities.
Many might wonder how one can make an income of ₹18 lakh tax-free when the exemption threshold only extends to ₹12.75 lakh. However, it is feasible when employing effective tax-planning strategies.
This Trick Will Help You
Curious about how you could achieve this? The key lies in a salary-related approach known as salary restructuring. By smartly adjusting your salary structure, it is possible to lower your taxable income to zero. Even with a salary amounting to ₹18 lakh, tax payment could be completely avoided if one opts for a well-planned salary structure.
How Additional Savings Are Possible
If your basic salary combined with dearness allowance (DA) is ₹12.75 lakh, you can efficiently save taxes through strategizing other components of your gross salary. Consider these allowances and deductions to maximize tax benefits:
- Contribute up to ₹1.71 lakh towards the National Pension System (NPS).
- Benefit from a motor car facility valued at up to ₹4 lakh.
- Receive an employer’s gift amounting to a maximum of ₹5,000, which is tax-free.
By leveraging these benefits, you can structure a gross salary amounting to ₹18 lakh in a way that remains entirely tax-free.
Rules Under Which Tax Can Be Saved
Under Section 80CCD(2) of the Income Tax Act, employer contributions to the NPS up to 14% of the basic salary plus DA are permissible. This approach allows for an exemption from tax on income up to ₹1.71 lakh. Furthermore, per Section 17(2)(7) with Rule 3(7)(iv), any gift received from the employer not exceeding ₹5,000 in a financial year is tax-exempt. Tax savings can also be realized through transport allowances and other eligible perks.
New Income Tax Law Coming Soon
A new Income Tax law is on the horizon, aimed at streamlining tax regulations. Finance Minister Nirmala Sitharaman plans to introduce the new Income Tax Bill soon, which will then be evaluated by a parliamentary committee. Notably, the bill has already received support from Prime Minister Narendra Modi.
In conclusion, understanding these new updates and strategies around income tax can help you maximize your earnings while minimizing your tax burden. Whether you’re a salaried employee or a high earner, knowing how to restructure your income can lead to significant savings.
Frequently Asked Questions
What is the new income tax exemption limit?
The new income tax exemption limit allows individuals to earn up to ₹12 lakh tax-free, with additional deductions bringing tax-free earnings up to ₹12.75 lakh for salaried individuals.
How can I make my income of ₹18 lakh tax-free?
You can make an income of ₹18 lakh tax-free by restructuring your salary components and employing certain allowances and deductions like those related to the NPS and employer gifts.
What are the benefits of salary restructuring?
Salary restructuring can help minimize your taxable income. By understanding and utilizing various salary components and exemptions, it allows for substantial tax savings.
Are employer gifts taxable?
Employer gifts up to ₹5,000 received in a financial year are tax-exempt as per current tax regulations, providing an opportunity for tax savings.
When will the new income tax law be introduced?
The new Income Tax Bill is expected to be presented by Finance Minister Nirmala Sitharaman soon and will undergo review by a parliamentary committee afterward.
