How to pay Zero Tax for Income up to Rs 12 Lakh from Salary for FY 2018-19

 December is the month when all salaried class start planning to save tax as they have to submit their investment declaration and expenditure details. Every year the ideal time for tax planning should be beginning of the year in which you can discuss with your employer what all allowances or exempt income you are eligible and how to take maximum benefit from it

“Avoidance of tax is not tax evasion and it carries no ignomity with it, for it is sound law and certainly not bad morality, for anybody to so arrange his affairs with a view to reduce burden of taxes to minimum” ( Madras HC ) . Tax planning can be through incentives granted as per law, so if one arrange it affairs within ambit of law to attract the least amount of tax is perfectly legal. An individual who is earning income from salary can plan his expenditure and investment in such a way that it can be used an effective tool for tax planning. Following are some of the ways which can be adopted so that the income tax outgo is minimum

Pay Zero Tax for Income up to Rs 12 Lakhs from Salary F Y 2017-18	Amount Rs
Basic Exemption	2,50,000
PPF, Insurance, ELSS, FD, NSC, etc (Section 80 C Deduction )	1,50,000
Investment in NPS (Section 80 CCD 1B )	50,000
Contribution of NPS By Employer (Section 80 CCCD 2)	1,50,000
Home Loan Interest or House Rent Allowance (Section 24 and Section 10)	2,50,000
Standard Deduction (Section 16)	40,000
Medical Expenses for Self and Parents (Section 80D)	50,000
Leave Travel Allowance (Section 10(13))	30,000
Travel and Fuel Reimbursement, Helper, Academic, Uniform Etc	1,50,000
Meal Coupons, New paper and Periodicals (Rs 50 Per Meal is Tax Free)	30,000
Relief under Section 87 of Rs 2500/-  (i.e 5% of Income)	50,000
Total Income – TaxFree	12,00,000

1) Investment in 80C for taking full benefit of 1.5 Lakhs

Any individual or HUF can get a tax deduction up to Rs. 150,000 per financial year under Section 80C of the Income Tax Act. The deduction can be claimed basically for investment or expenditure made on following

1. Investment Schemes: ELSS Mutual Funds, Unit Linked Insurance Policies (ULIPs)
2. Insurance Schemes: Term Insurance, Endowment Insurance
3. Retirement Savings Schemes: Public Provident Fund, (PPF), Employees Provident Fund, National Pension System (NPS)
4. Fixed Income Schemes: National Savings Certificate (NSC), Senior Citizens Saving Scheme (SCSS), Sukanya Samriddhi Yojana, Investment in 5 Year FD
5. Miscellaneous: Home loan repayment, tuition fee payment etc
   

2) Investment in National Pension Scheme up to Rs 2 Lakhs

Finance Minister Arun Jaitley in Budget 2015-16 introduced an additional income tax deduction of Rs. 50,000 for contribution to the New Pension Scheme (NPS) under Section 80CCD. NPS is a voluntary pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority. This extra deduction of Rs. 50,000 on NPS will increase the total deduction allowed under Section 80C and 80CCD of Income Tax Act to Rs. 2 lakh. The finance minister has made withdrawals from NPS on maturity tax free upto 60% of the total corpus accumulated. For government employees NPS withdrawal is totally tax exempt making it one of the best investment option available. Government in Budget 2019 is looking to make NPS withdrawal fully exempt for all which will make it more attractive for investments.

NPS offers additional tax deduction on employer contribution up to 10% of basic and DA. This is over and above other limits as discussed above. All you have to do is to ask your employer to make minor adjustments in your salary structure. The government gives special tax exemption for contribution towards the National Pension System (NPS) by employers on behalf of employees under the corporate model. In that way you can convince your employer and get benefit from additional deduction of 10% of Basic which can be as high as 2 Lacs a Year.

3) Home Loan Interest and / or  House Rent Allowance Rs 2.5 Lakhs

A home loan must be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of financial year in which loan was taken. If you are paying EMI for the housing loan, it has two components – interest payment and principal repayment. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24. First time home buyers to get additional deduction of Rs 50,000 on interest for loan upto Rs 35 lakh. This additional deduction has been given on interest for loan up to Rs 35 lakh, provided the house value doesn't exceed Rs 50 lakh.  Assuming a loan of Rs 35 lakh to be paid over 20 years, the annual deduction comes to around Rs 2.5 lakh, including the Rs 2 lakh currently available. At 9%, the interest outgo in the first year would be Rs 3.12 lakh. So, the buyer will save Rs 75,000 if he is in the 30% tax-bracket

You can structure your salary in such a manner that you get an HRA component. Usually it is 50% of the basic salary you have earned so that you can claim maximum HRA benefit as per formula. You can pay rent amount to your family members like father or mother (who might be not earning or less than 30% bracket) and Claim HRA benefit. In a recent case assesee was allowed HRA benefit when he paid rent to Wife. Details of case are “AO disallowed assessee’s claim for HRA exemption on the ground that assessee and his wife was living together and claim of payment of rent by assessee to his wife was made to reduce his tax liability and the CIT(A) confirmed the addition on the ground the tenant (i.e. assessee) and the landlord (i.e. his wife) were staying together which indicated that the whole arrangement was a colorable device, it was held that the assessee had submitted the rent receipts and the payments had been duly verified. Therefore, the assessee had fulfilled the twin requirement of the provision i.e. occupation of the house and the payment of rent. Thus, he was entitled to exemption under section 10(13A). [Bajrang Prasad Ramdharani v. ACIT (2013) 37 taxmann.com 186 (Ahmd) (Trib)]”

Thus it can be seen that only two things are required, possession of the property – Means person claiming HRA should be staying in the rented property and secondly rent payment must be made. In this way you can claim additional benefits and save tax on your income

You can claim both home loan interest and HRA also if you satisfy all the condition as mention above

4) Standard Deduction of Rs 40,000

In order to provide relief to salaried taxpayers, standard deduction has been reintroduced w.e.f. financial year 2018-19. While computing the income chargeable under the head “salary” besides other deductions, a deduction of RS 40000 or the amount of the salary, whichever is less will be allowed. The benefit of Transport allowance and medical reimbursement is withdrawn from FY 2018-19 and a flat benefit of Rs 40000/- as standard deduction is allowed to all employees

5) Medical insurance for Self, Parents and Dependents up to Rs 50,000

Payment of premium on life insurance policy and health insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Medical insurance premium paid by assessee, being individual/HUF by any mode other than cash. Sum paid by assessee, being individual on account of preventive health check-up. Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person.

6) Leave Travel Allowance Up to Rs 25,000

An LTA is the remuneration paid by an employer for Employee’s travel in the country, when he is on leave with the family or alone. Amount from LTA is tax free. Section 10(5) of the Income-Tax Act, 1961, which provides for the exemption and outlines the conditions subject to which LTA is exempt. The exemption can be availed for the journey undertaken while on leave during the tenure of service or even after retirement/termination from service. The exemption is allowed only in respect of fare. Expense incurred on porterage, conveyance from residence to the railway station/airport/bus stand and back, boarding and lodging or expenses during the journey will not qualify for exemption.

7) Reimbursement of Expenses in nature of allowance which are tax free

Travelling allowances: any allowances granted to meet the cost of travel on tour or on transfer of duty.” allowance granted to meet the cost of travel on transfer “ includes any sum paid in connection with transfer, packing and transportation of personal effects on such transfer;

Daily allowance: any allowance, whether granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duties;

Conveyance allowance: any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit, provided that free conveyance is not provided but the employer;

Helper allowance: any allowance, by whatever name called, granted to meet the expenditure incurred on a helper where such helper is engaged for the performance of the duties of an office or employment of profit;

Academic allowance: any allowance, by whatever name called, granted for encouraging academic, research and training pursuits in educational and research institutions;

Uniform allowance: any allowance, by whatever name called, granted to meet the expenditure incurred on the purchase or maintenance of uniform for wear during the performance of duties of an office or employment of profit.

New paper and periodicals allowance are reimburse by the employer fully exempt

Children education allowance: Exempt up to actual amount received per child or RS 100 p.m. per child up to a maximum of 2 children, whichever is less.

Hostel expenditure allowance: Exempt up to actual amount received per child or RS 300 p.m. per child up to a maximum of two children, whichever is less.

The above allowances shall be exempt to the extent of minimum actual allowance received or actual amount spent for the purpose of duties of office or employment.

8) Meal Coupons up to Rs 10000

Is Food Coupon like Sodexo coupons which are very famous given by employers to employee. The Rule says Food coupons or meal vouchers are tax exempt up to a limit of Rs 50 per meal. Such a meal voucher issued by a company to its employee should be used only during working hours and is restricted to two meals per day.  The Paid vouchers must be Non Transferable and usable at eating joint only.  If such coupons are used at places other than waiting joints then the value of coupon received by employee is not tax free. This works to Rs 100 per working day, as it's generally assumed that an individual would have two meals during a working day. Let's assume that if an employee consumes two meals a day using meal vouchers in a working day and works for 25 days in a month, then meal vouchers can be tax exempt only to the extent of Rs 2,500 per month (Rs. 50 per meal x 2 x 25 days). Now meal can be either breakfast, lunch or dinner. It's also important to note that the meal vouchers issued to employees are non-transferable and should be used at restaurants and other eateries. 

9) Relief under Section 87A

The rebate can be claimed if you satisfy both these conditions: You are a RESIDENT INDIVIDUAL. Your Total Income Less Deductions (under Section 80) is equal to or less than Rs 3,50,00

If both the above conditions are satisfied, rebate of Rs 2,500 will be available under Section 87A. The rebate is limited to Rs 2,500. Which means if the total tax payable is lower than Rs 2,500, such lower amount of tax will be the rebate under section 87A. This rebate is applied on total tax before adding Education Cess(3%). This rebate is also available to Senior Citizens who are 60 years old but less than 80 years old.

10) Claiming 80TTA up to Rs 10000/- and 80TTB for senior citizen Rs 50000/-

Section 80TTA is in respect of interest on deposits in savings account in the Income Tax Act. An individual can claim exemption on up to Rs. 10,000 received as interest on your savings account deposits.  

Section 80TTB is a provision whereby individual who is a resident senior citizen, aged 60 years or above can get a deduction of Rs 50,000 on an amount received as interest on saving or bank deposits and post office deposit