With the income tax season in full swing, many salaried individuals are looking for ways to minimize their tax liability. Surprisingly, it is possible to legally pay zero tax even on a salary of ₹13.7 lakh, provided you know the right strategies. With the proper use of exemptions, deductions, and investments, individuals can significantly reduce their taxable income and maximize their take-home salary. Here’s how you can do it.
1. Take Advantage of the ₹1.5 Lakh Deduction under Section 80C
One of the most well-known ways to save tax is by investing in instruments that qualify for deductions under Section 80C of the Income Tax Act. These deductions allow you to reduce your taxable income by up to ₹1.5 lakh. Popular options include:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- National Savings Certificate (NSC)
- 5-year Fixed Deposit with a bank
- Tax-saving Fixed Deposits
- National Pension Scheme (NPS)
By fully utilizing this ₹1.5 lakh limit, you can immediately reduce your income by ₹1.5 lakh, which can make a significant impact on your overall tax calculation.
2. Claim the ₹50,000 Deduction under NPS (Section 80CCD(1B))
Beyond the ₹1.5 lakh limit under Section 80C, you can also invest in the National Pension Scheme (NPS) and claim an additional deduction of up to ₹50,000 under Section 80CCD(1B). This is over and above the ₹1.5 lakh limit of Section 80C, providing a unique opportunity to save even more.
For a ₹13.7 lakh salary, this additional ₹50,000 deduction can further reduce your taxable income, giving you a lower bill at the end of the year.
3. Deductions for Home Loan Interest (Section 24(b))
If you have a home loan, you can claim a deduction of up to ₹2 lakh on the interest paid under Section 24(b) of the Income Tax Act. This is a significant benefit for homeowners. Let’s say you are paying a home loan interest of ₹2 lakh or more; this amount will be deducted from your taxable income, thereby reducing your overall liability.
This deduction is available on home loans for both self-occupied and rented properties, making it an attractive option for many taxpayers.
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4. Use the ₹50,000 Deduction for Health Insurance (Section 80D)
Health insurance premiums can also help in reducing taxable income. Under Section 80D, you can claim a deduction of up to ₹25,000 for premiums paid on health insurance policies for yourself, your spouse, and your children. If you are also covering your parents, the deduction increases to ₹50,000, provided your parents are senior citizens.
By taking full advantage of this provision, you can reduce your taxable income by up to ₹50,000, depending on your health insurance policy and the number of people covered.
5. Standard Deduction of ₹50,000
In addition to specific deductions and exemptions, the government also provides a standard deduction of ₹50,000 for salaried individuals.
6. Claim Tax-Free Allowances
Salaried employees are often eligible to claim tax-free allowances, which can help reduce their taxable income. Some common allowances that are exempt from tax include:
- House Rent Allowance (HRA): If you live in a rented house, you can claim HRA as a tax-free allowance.
- Special Allowance for Children’s Education: Under certain circumstances, you may be able to claim exemptions on children’s education and hostel allowances.
These allowances can be used effectively to reduce the taxable income and lower the amount of payable.
7. Invest in Tax-Free Bonds
Another investment option that can help you save tax is tax-free bonds. The income generated from these bonds is exempt from tax, which means you won’t have to pay any tax on the returns earned. While these bonds generally offer lower returns than other investment options, they can be a good choice for risk-averse individuals looking to reduce their income.
Final Thoughts
By utilizing the various exemptions and deductions available under the Income Tax Act, it is possible to legally reduce your taxable income and pay little to no tax on a salary of ₹13.7 lakh. By investing wisely, claiming relevant deductions, and planning your finances, you can maximize your savings and minimize your tax burden.
It is important to remember that tax-saving is a year-round activity. Therefore, it’s always a good idea to start early, plan effectively, and stay updated on changes in laws to ensure you’re making the most of all available opportunities.
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