New tax regime: Finance Minister Nirmala Sitharaman has given a big relief to the general public in the budget. He liberalised annual income up to Rs 12 lakh tax. This will greatly benefit the middle class. In addition, if you plan well, you can also save tax on earnings above 12. Tax experts believe that a CTC (cost to the company) of Rs 14.65 lakh can be tax-free very easily.
How will income of Rs 14.65 lakh be exempt from tax?
Now suppose your annual salary is Rs 14.65 lakh. Half of this money i.e. 50 per cent goes to the basic salary. At the same time, the remaining 50 percent is available as other commodities and perks. We will calculate the tax deduction as per the basic paycheque amount.
Complete calculation of tax exemption
If the company contributes 12 percent of the basic salary to the employee provident fund, a tax deduction can be claimed on it. It will be Rs 87,900. Also, the National Pension System (NPS) also offers tax exemption on the company’s contribution. The contribution will be 14 per cent of the basic salary i.e. Rs 1,02,550. Plus, you get a standardised deduction of 75,000 in the new tax regime. That is, this amount will directly reduce your taxable income.
After availing all these exemptions, your net taxable income will be Rs 11,99,550 lakh. The government has exempted income up to Rs 12 lakh, so this means you won’t have to pay a single rupee in tax. However, you have to keep in mind that this arrangement will be implemented from the next financial year i.e. 2025-26.
How many rupees will be left in the total tax
If the government does not provide free income tax up to Rs 12 lakh and does not benefit from tax deduction on EPS and NPS, then an annual income of Rs 14.65 lakh will have to pay heavy tax. According to the new tax regime, 5 per cent tax (Rs 20,000) will be levied on earnings of Rs 4 to 8 lakh.
Also, 10 per cent tax on earnings of Rs 8 to 12 lakh (Rs 40 thousand) will be taxed at 15 per cent on earnings of Rs 12 to Rs 14.65 lakh. In this, if you remove the standard deposit of Rs 75 thousand, then 15 per cent tax will be levied on Rs 1.90 lakh or Rs 28,500. This will bring the total tax liability to Rs 88,500, which you can easily save.
The role of EPS and NPS
Tax exemption is available on NPS contributions under Employees Pension Scheme (EPS) and 80CCD (2) under Section 80CCD(1) of Income Tax. However, in the new tax regime, this exemption is only available on the company’s contribution, as it is considered your direct income. Therefore, you are allowed to claim a tax exemption on it.
The National Payment System (NPS) is a retirement scheme. Those who join this government scheme get a pension after retirement. In this, the contribution is invested in the market and the return is given in the form of a pension. NPS started in 2004.
