How to pay 0 tax on Rs 20,00,000 income in old regime? Check calculations inside
Section 80C deductsions: The Income Tax Act allows up to Rs 1,50,000 per annum deductions under Section 80C. You can invest across PPF, NSC, ELSS, PPF EPF to take Section 80C benefits.
To achieve zero tax on an annual income of Rs 20,00,000 in India for FY 2025-26 (AY 2026-27), you need to leverage exemptions, deductions, and rebates available under the old and new tax regimes. The old tax regime offers multiple deductions and exemptions like Section 80C, 80D, HRA, etc, which can significantly reduce taxable income. To pay zero tax on Rs 20 lakh under the old regime, you need to reduce your taxable income to Rs 5 lakh or below to avail the full rebate under Section 87A (up to Rs 12,500). In this article, we will see an expert's calculations to pay zero tax on Rs 20 lakh salary under the old tax regime.
Images from Pixabay
Calculation courtesy: GenzCFO
CTC breakup
First of all, let's check the salary breakup for Rs 20,00,000 income.
Basic Salary: Rs 8,00,000 (40% of CTC)
HRA: Rs 4,00,000
Special Allowance: Rs 6,50,000
LTA: Rs 1,50,000
Total CTC: Rs 20,00,000
HRA exemption
House rent allowance (HRA) depends on salary structure, rent paid, and the city. Assume HRA is 50 per cent of basic salary, and rent paid is optimised.
1. Actual HRA received: Rs 4,00,000.
2. Rent paid minus 10% of basic salary: Assume rent paid is Rs 5,00,000. Exemption = Rs 5,00,000 - (10% of Rs 8,00,000) = Rs 4,20,000.
3. 50% of basic salary (metro city): 50% of Rs 8,00,000 = Rs 4,00,000.
HRA exemption = Rs 4,00,000 (minimum of the three).
Deductions and exemptions
Gross Income: Rs 20,00,000
HRA Exemption: Rs 4,00,000
LTA Exemption: Rs 1,50,000
Standard Deduction: Rs 50,000
Gross Taxable Income: 14,00,000
Standard deduction under old tax regime
In the old tax regime, the standard deduction is Rs 50,000.
Section 80C deductions
The Income Tax Act allows up to Rs 1,50,000 per annum deductions under Section 80C. You can invest across PPF, NSC, ELSS, PPF EPF to take Section 80C benefits.
NPS- Self
Self NPS Contribution Under Sec 80 CCD 1B is exempted from Income Tax, and the maximum limit for this is Rs 50,000.
NPS- Employer's contribution
You can also claim 10 per cent of your basic pay and dearness allowance under the employer's NPS contribution (Section 80 CCD 2B).
Section 80D deductions for Self and parents
Under Section 80D, individuals can claim a tax deduction on medical insurance premiums of up to Rs 50,000 per financial year for senior citizens and Rs 25,000 for non-senior citizens. Rs 50,000 is exempted under Section 80D, assuming the age of parents is more than 60.
Home loan
Section 24(b): Home loan interest up to Rs 2 lakh (self-occupied property) is allowed under the old tax regime.
Donations
Section 80G: Donations to eligible charities (50% or 100% deductible).
Loan interest on electric vehicles
Section 80 EEB: Interest on electric vehicle loan of up to Rs 1,50,000 is allowed.
Standard deductions
Gross taxable income: Rs 14,00,000
Section 80C: Rs 1,50,000
NPS: Rs 50,000+ Rs 80,000= Rs 1,30,000
Medical Insurance (Family): Rs 75,000
Housing Loan Interest: Rs 2,00,000
Education Loan Interest: Rs 85,000
Interest on savings bank account: Rs 10,000
Donations: Rs 1,00,000
Interest on electric vehicle loan: Rs 1,50,000
Total: Rs 9,00,000
Net taxable income: Rs 14,00,000- Rs 9,00,000= Rs 5,00,000
Old tax regime: Income slab rate
Rs 0 – Rs 2,50,000- 0%
Rs 2,50,001 – Rs 5,00,000- 5%
Calculations
5%x(Rs 5,00,000 - 2,50,000) = Rs 12,500
Total tax liability is Rs 0 since Rs 12,500 rebate can be availed if the total taxable income is less than Rs 5,00,000 in the old regime.