How To Pay Zero Tax For Income Upto Rs 12 Lakhs From Salary For Financial Year 2016-17 Budget 2016

The Budget has made no important change for the Tax Rates for the Individuals. The Individuals who earn income of Less than Rs. 5 Lakhs will get Rs 5000/- as Tax rebate under the section 87A. There is an increase in the surcharge on the income tax collected on the individuals earning income of Rs 1 crore or more from 12% at present to 15%. The main motive is to tax the rich. The Middle Class always pay sufficiently more tax which include the indirect taxes and have to plan their retirement and savings at the same time save on the overall tax outgo. 

Investment in 80C for the Purpose of taking full advantage of Rs. 1.5 Lakhs

Deduction under the 80C is related to the deduction that an individual can deduct from his gross taxable income in order to diminish his tax accountability by investing in the specified investment. It is applicable to the individuals and HUF. An assessee can get deduction under the section 80C upto a maximum of Rs.1,50,000. The qualifying investments and expenditure as deduction under the 80C are investment in the Insurance Policy, Post Office Time Deposit Account, Investment in Equity Linked Saving Scheme (Mutual Funds), Public Provident Fund, National Saving Certificate, Tuition Fees Paid, Bank Fixed Time Deposit, Repayment of Principal of Housing Loan, Sukannya Samriddhi account.

Investment in National Pension Scheme up to Rs 2 Lakhs

In the Budget 2015-16, the Finance Minister introduced an additional income tax deduction of Rs. 50,000 for the addition to the New Pension Scheme (NPS) under the Section 80CCD. NPS is a voluntary pension scheme, which is organized by the Pension Fund Regulatory and the Development Authority. This extra deduction of Rs. 50,000 on the NPS will increase the total deduction allowed under the Section 80C and 80CCD of the Income Tax Act to Rs. 2 lakh. In the Budget of 2016, the finance minister has made withdrawals from the NPS on the maturity tax free upto 40% of the total corpus accrued. Currently, none of the withdrawals were tax-free unlike the other competing instruments such as PPF and EPF where the total withdrawal was tax-free. This is a major step towards making the NPS scheme more attractive and bringing it on par with the other EEE pension schemes. The Budget 2016 urges to administer a uniform tax treatment to the recognised provident fund, national pension system and superannuation fund. 

It is planned that 40% of the pension wealth received by an employee from the National Pension System Trust will be exempt. 

Home Loan Interest and House Rent Allowance (up to Rs 2.5 Lakhs or Rs 60 Thousand)

Employees get House Rent Allowance as a part of the Salary. If the Employee is living in rented accommodation they can Claim House Rent Allowance advantage and save on taxes. If the Employee is staying with the parents in that case too they can pay the rent to their parents and Claim the House Rent Allowance advantage.  

For the employees who don't get the advantages of House Rent Allowance, the FM raised the deduction against the house rent from Rs 2,000 per month to Rs 5,000. This will result in tax savings in the range of Rs 3,708 to Rs 12,204, depending on the income slab.

Further in Budget 2016, First time home buyers to get additional deduction of Rs 50,000 on the interest for loan upto Rs 35 lakh. This additional deduction has been given on the interest for loan up to Rs 35 lakh, administered the house value which doesn't exceed Rs 50 lakh.  For the 2016-17 Budget urges the tax relief on the interest payment on the home loan if the property is bought, or under construction, is completed within 5 years from the end of the financial year in which the loan was fulfilled instead of the current 3 years. Assuming a loan of Rs 35 lakh to be paid over 20 years, the annual deduction comes to around Rs 2.5 lakh which include Rs 2 lakh currently available. At 9%, the interest outgo in the first year will be Rs 3.12 lakh. So, the purchaser will save Rs 75,000 only if he is in the 30% tax-bracket

Tax Free Medical Allowance and Transport Allowance up to Rs 40 Thousand

Medical reimbursement and Transport Reimbursement can be claimed by the employee and it will be taken care in the form 16 itself. For Medical Bills, the Employee needs to submit a proof of the expenditure acquired.

Medical insurance for Self, Parents and Dependents up to Rs 50 Thousand

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

Leave Travel Allowance Up to Rs 25000

An LTA is the compensation paid by an employer for the Employee’s travel in the country, when he is on leave with the family or alone. Amount from the LTA is tax free. Section 10(5) of the Income-Tax Act, 1961, which administers for the exemption and outlines the conditions liable, to which LTA is exempt. 

Reimbursement of Expenses for Mobile, Travel, newspaper as actuals

Many employers administer reimbursement of Travel Expenses, Mobile and Phone Bill and for the News Paper. Employee has to submit a proof of expenditure.

Meal Coupons up to Rs 10 thousand

Most of time employers and the employee are not aware of the taxability of food coupon and estimate they are exempted. 

Relief under Section 87A

Budget has increase the relief under the section 87A from Rs 2000/- at present to Rs 5000/-. So, efficiently if the taxable income is less then Rs 5 Lakhs an individual can Claim relief of Rs 5000/- in the taxes paid. If we consider 10% slab rate then it turnout to be Rs 50000/- as an additional advantage which can be claimed in this Section. 

From the above mentioned details, it is cleared that if the Individual plan in proper manner for the year 2016 -17 financial year he cannot only save the taxes but can also plan an investment in the Resident Property, only if he is not owing one. 

For the advantage of Retirement, the NPS seems to be better option considering the current changes in the Budget 2016.

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.