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Tax Saving Under Old Tax Regime: Finance Minister Nirmala Sitharaman has increased the tax exemption limit to Rs 7 lakh per annum under the new tax regime. This means that under the new tax regime, taxpayers will not have to pay any tax on annual income of Rs 7 lakh, but if the annual income is more than Rs 7 lakh, then you will have to pay tax.
No changes have been made under the old tax system. In such a situation, it is very important to understand which tax system is more suitable for you. You can understand this with an example. If your annual income is Rs 10.5 lakh, then let us know how much tax you will have to pay under the new and old tax regime.
Tax on annual income of Rs 10.5 lakh
If your annual income is Rs 10.5 lakh, then you will have to pay Rs 60,000 under the new tax regime. You cannot claim tax exemption under the new tax regime. However, if you pay tax under the old tax regime, then you will need to deduct up to Rs 2,62,500. After this, tax of Rs 60 thousand will have to be paid under the old tax regime.
Zero tax will have to be paid on 10.5 lakh annual income
If you want to pay zero tax under the old tax regime on an annual income of Rs 10.5 lakh, you will have to claim a total deduction of Rs 5.5 lakh. For this, you can take advantage of several exemption provisions under the Income Tax Act.
How to claim deduction of Rs 5.5 lakh
The standard deduction for an income of Rs 10.5 lakh will be Rs 50,000. A deduction of Rs 1.5 lakh can be made under Section 80C of Income Tax. If invested in NPS, a deduction of Rs 50,000 can be made under section 80CCD(1B). If you have taken health insurance for your family or yourself, you can save up to Rs 75,000 under section 80D.
On the other hand, if you have taken a home loan, you can claim a deduction of up to Rs 2 lakh under Section 24(B) of the Income Tax. At the same time, if donation has also been given to any institution, then section 80G of income tax can save 25 thousand rupees. That means you can save up to Rs 5.5 lakh in total tax.
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