Is it possible to pay zero tax for a salary up to 12 lakhs, that too in a legal way? Proper tax planning and execution can help you avoid taxes on your money. So, It is necessary to know How to Pay Zero Tax for Income upto 12 Lakhs.
As January comes, the salaried class people start tax planning because they must submit their investment and expenditure details at the end of March. The best time to start tax planning is the beginning of the year. You must ask your employer for eligibility for allowances and exempt income and how to pay zero tax for income up to 12 Lakhs.
The simple way How to Pay Zero Tax for Income upto 12 Lakhs, you plan your income and expenditure smartly to use them as the best practical and legal ways of saving tax.
This article will discuss the most asked question, “ How to pay zero tax for income up to 12 lakhs”.
Also read: How To Save Tax For Salary Above 50 Lakhs
What are the tax slab and deductions for Rs. 12 lakhs salary?
Before knowing “How to pay zero tax for income up to 12 lakhs”, let’s understand the tax slab and deductions applicable on a salary up to 12 lakhs. The current tax slab is explained in the table below:
| Salary | Applicable tax % |
| Upto 2.5 lakhs | No tax |
| From 2.5 lakhs to 5 lakhs | 5% |
| From 5 lakhs to 7.5 lakhs | 10% |
| From 7.5 lakhs to 10 lakhs | 15% |
| From 10 lakhs to 12.5 lakhs | 20% |
| Above 12.5 lakhs | 30% |
The deductions available for salaried people up to Rs. 12 Lakhs:
- Section 80C: The deductions of up to 1.5 Lakhs are available for investments in EPF, PPF, NPS, ELSS, etc.
- Section 80D: Up to Rs. 25000 deductions are possible on premiums paid for medical insurance for your family.
- Section 80TTA: The interest you get on the savings account of a bank is eligible for deduction up to Rs. 10,000
- Section 80G: Donations are eligible for deductions up to 50% of the amount.
Tax saving instrument to Pay Zero Tax for 12 Lakhs Income Tax Slab
People usually prefer investing in tax-saving tools to reduce their liability. Along with investment instruments, there are many other ways too. Some of the common methods for How to pay zero tax for income up to 12 lakhs are explained below:
1. Employee Provident Fund (EPF)
EPF is an excellent way of tax planning for salaried persons earning up to Rs. 12 lakhs per annum. The contributions done in the EPF are deductible under section 80C. Interest that you earn on the EPF amount is also tax-free. However, the interest rate at present is 8.5%.
2. Public Provident Fund (PPF)
PPF is the most preferred way How to pay zero tax for income up to 12 lakhs and achieve long-term goals. The interest rate offered on PPF is 7.1% and is tax-free. The PPF contributions are deductible under section 80C of the Income Tax Act.
3. National Pension Scheme (NPS)
NPs are the best retirement plan available for Indian citizens and a fantastic way to Pay Zero Tax for a 12 Lakhs Income Tax Slab. NPS contributions are tax deductible under Section 80C and the additional deduction of up to Rs. 50,000 under 80CCD(1B). The interest is tax-free.
4. Equity- Linked saving scheme
ELSS Mutual fund lets you invest in equities. It is deductible under 80C. The returns on the ELSS are market-linked and have a year’s lock-in period.
5. Medical Insurance
If you buy medical insurance for yourself, your spouse, and your children, it is deductible under 80D up to Rs. 25000. In case the medical insurance cover your dependent parents, who are senior citizen, the premiums are tax-deductible under 80D up to Rs. 50,000
6. House Rent Allowance (HRA)
If you are a salaried employee, HRA can also help you How to pay zero tax for income up to 12 lakhs. You can claim the exemptions on HRA according to the following:
- You must pay the house rent, and it should be above 10% of your basic salary.
- The people living in metro cities can claim exemptions up to 50% of the basic pay. If you live in a non-metro city, the exemption can be claimed up to 40% of your basic pay.
- It is mandatory to present a rent slip, Lease agreement, etc.
- NPS Tier II Account
Tier 1 of the NPS is mandatory if you are a salaried person, but if you wish, you can also go for Tier II, which is entirely voluntary. It allows you to invest and withdraw the amount as you wish. The money invested in this account is non-deductible, but the interest earned is tax-free.
7. LTA Benefits
Leave Travel Allowance is offered to salaried employees for domestic travel in India. In 4 years, you can claim the exemption twice. You must present travel proof, tickets, boarding passes, etc.
8. Splitting the income
Another legal way How to pay zero tax for income upto 12 lakhs, you can split your payment. You can gift the amount to one of your family members with no or low income, such as your spouse. Invest the money in your spouse’s name, and the income from here will help you reduce tax liability. Make sure that gifts must be genuine and must not attract the attention of the income tax department.
Example of calculation of tax using Old Tax Regime
To know the method of Pay Zero Tax for 12 Lakhs Income Tax Slab, here is the calculation of tax liability for income of Rs. 12.5 Lakhs:
| Gross Salary | Rs. 12,50,000 |
| House rent allowance | Rs. 60,000 |
| Leave travel allowance | Rs. 20,000 |
| Standard Deduction | Rs. 50,000 |
| Professional tax | Rs. 2400 |
| Section 80C, 80CCC, 80CCD (1) | Rs. 1,50,000 |
| Section 80D | Rs. 50,000 |
| Section 80E | Rs. 25000 |
| Total exemptions and deductions | Rs. 3,57,400 |
| Net taxable income | Rs. 8,92,600 |
| Tax calculation | |
| Upto Rs. 2,50,000 | Nil |
| Rs. 2,50,001 – 5,00,000 | Rs. 12,500 |
| Rs. 5,00,000 – 10,00,000 | Rs. 78,520 |
| Above Rs. 10,00,000 | Nil |
| Total Tax | Rs. 91,021 |
| Tax Rebate | Nil |
| Net Payable Tax ( with 4% cess) | Rs. 94,661 |
Example of calculation of tax using Old Tax Regime
Here is an example of an old tax regime used to Pay Zero Tax for a 12 Lakhs Income Tax Slab:
| Gross Salary | Rs. 12,50,000 |
| Standard Deduction | Rs. 50,000 |
| Net taxable Income | Rs. 12,00,000 |
| Tax Calculation | |
| Income upto Rs. 3,00,000 | Nil |
| Rs. 3,00,001 – 6,00,000 | Rs. 15,000 |
| Rs. 6,00,000 – 9,00,000 | Rs. 30,000 |
| Rs. 9,00,000 – 12,00,000 | Rs. 45,000 |
| Rs. 12,00,000 – 15,00,000 | Nil |
| Above Rs. 15,00,000 | Nil |
| Total Tax | Rs. 90,000 |
| Tax Rebate | Nil |
| Net tax payable (with 4% cess) | Rs. 93,600 |
Also read: How To Save Tax For Salary Above 20 Lakhs
Conclusion
To Pay Zero Tax for a 12 Lakhs Income Tax Slab, you must do excellent tax planning and understand the tax slab and deductions. You can invest in various tax saving schemes introduced by the government of India and utilize HRA and LTA benefits. The important aspect of tax planning is to consult a financial advisor who can help you save maximum tax and Pay Zero Tax for the 12 Lakhs Income Tax Slab.
How to Pay Zero Tax for Income upto 12 Lakhs – FAQs
How can we claim a tax rebate under section 87A of the income tax act?
Ans. When you file the income tax and your taxable income is below Rs. 5 lakhs after all deductions and exemptions, you are eligible for a tax rebate of Rs. 12,500 for the old regime. However, it is Rs. 25,000 for the new regime.
Do Agniveers get tax deductions?
Ans. Agniveers get the claim deduction similar to the amount contributed to the Agniveer corpus fund.
Please explain the tax deduction under 80D.
Ans. Under 80D, you will get tax deductions on premiums for medical insurance. If the premium is for yourself, it will allow a deduction of Rs. 25,000. The premium for yourself and parents below 60 years is deductible upto Rs. 50,000, while in case the parents are above 60 years, it will rise to Rs. 75,000
How to Calculate HRA?
Ans. The employees can claim the HRA is the rent or HRA is below 10% of basic pay and DA. Non-metro city residents can claim 40% of their basic salary + DA. In the case of Metro City residents, they can claim 50%.
What are the maximum tax benefits of children’s allowance?
Ans. Children’s allowance is an excellent way to Pay Zero Tax for a 12 Lakhs Income Tax Slab. It allows you to claim max. Tax exemption up to Rs. 12,00 per annum. It only will enable benefits to 2 children.
How does the medical treatment of dependent relatives help in tax saving?
Ans. Section 80DDB of income tax allows the deduction for medical treatment for dependent relatives. However, it only covers specific health issues. The dependents include spouses, children, parents, and siblings. Rs. 40,000 deduction is allowed, but if the dependent is a senior or super senior citizen, it rises to Rs. 1,00,000.
Can you save 100% on tax for a salary up to 12 lakhs?
Ans. Yes, it is possible to pay zero tax on salaries up to 12 lakhs with excellent tax planning. You must invest smartly in tax-saving tools and claim the exemptions without fail.
Leave a Reply