How To Save Income Tax- To make the new tax system attractive, the government has also added some benefits available in the old tax system.
Tax Saving: In India, income tax payers get two options to deposit their taxes. He can file ITR by choosing the old tax system. In this he gets the benefit of tax exemption and deduction. At the same time, the income tax payer who chooses the new tax system does not get the benefit of most of the tax exemptions and deductions. An attempt has been made to make the annual income of up to Rs 7 lakh tax free for those adopting the new income tax regime. Apart from this, there are some deductions which salaried employees can also get in the new tax regime.
Income tax payers choosing the new tax system can definitely avail the benefit of two deductions. One is standard deduction and the other is deduction on the contribution made by the employer in NPS. By availing the benefit of both these deductions, a salaried person can significantly reduce his tax liability. If his total annual income is Rs 8 lakh then he will not have to pay even a single penny as income tax.
Standard deduction
Standard deduction is the deduction which is deducted from the income of the taxpayer and after that tax is calculated on the remaining income. Employed individuals get a tax deduction of up to Rs 50,000 as standard deduction, while family pensioners are given a tax deduction of Rs 15,000 as standard deduction. Suppose the annual income of a working person is Rs 8 lakh. In such a situation, if you get the benefit of standard deduction up to Rs 50,000 in the total package, then its tax will be calculated on Rs 7,50,000 instead of Rs 8 lakh. No documents have to be submitted to avail this discount.
Income taxpayers who have adopted the new tax system can also now avail the benefit of standard deduction. While filing Income Tax Return or ITR, standard deduction is claimed under the head Income from salaries/pension under Section 16(ia) of the Income Tax Act. Family pension is kept under the head “Income from other sources” in ITR.
Deduction on amount deposited in NPS
Under the new tax regime, employed employees also get the benefit of standard deduction on the amount deposited in the National Pension System (NPS). To get this, certain conditions must be fulfilled. The first condition is that this amount in NPS should be deposited by the employer in the Tier-1 NPS account of his employee. Secondly, this amount should not be more than 10 percent of the salary of private sector employees.
For government employees this limit is 14 percent. Salary means the amount made by combining basic salary and dearness allowance. Employed people can avail the benefit of this deduction under Section 80CCD (2) of the Income Tax Act. This amount deposited in the NPS account will be mentioned in Part B of Form 16.
Income up to Rs 8 lakh can be tax free
After availing the benefit of both these deductions, the income of a working person earning Rs 8 per year can be tax free. After deducting Rs 50,000 as standard deduction from his annual income of Rs 8 lakh, his taxable income will be Rs 7.5 lakh. Now if the employer deposits Rs 50 thousand in the employee’s Tier-1 NPS account, then the taxable income will further reduce to Rs 7 lakh. On which no tax will have to be paid under the new tax regime.
