How to Pay 0 Income Tax on Rs 11 Lakh Salary? (FY 2016-17)

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How to Pay Zero Income Tax on Rs 11 Lakh Salary?

How to Pay Zero Income Tax on Rs 11 Lakh Salary?

Salaried class have always complained of raw deal year after year in income tax laws. But the good news is you can still manage to pay Zero (NIL) income tax on salary of up to Rs 11 lakhs. All you need to have is right salary structure and invest in RIGHT Tax saving plans! We give you details below.

Tax Efficient Salary Structure:

Salary structure is very important to keep taxes low. The good news is most employers are partially flexible with salary structure. We give you one such sample salary structure for CTC (Cost to Company) of Rs 11 lakhs.

We have kept following points in mind:

  • Included all components which are tax free
  • For most benefit of HRA – it should be 50% of Basic salary (40% is good if rented houses are in non-metro)
  • Transport Allowance/Car Maintenance
    • Transport Allowance up to Rs 1600 per month is tax free while this limit is Rs 3,200 per month for orthopedic person.
    • The company can reimburse Rs 1,800 per month for car less than 1600 CC (Rs 2,400 per month for bigger cars) along with Rs 900 per month for driver salary as tax free allowance.
  • Employer can have option of subscribing to both NPS & EPF. Keeping both makes salary more tax efficient, though take home may go down
  • Gift Voucher worth Rs 5,000 per annum is tax free. Some companies give such vouchers at birthdays or anniversaries!
  • Company owned cars give much more tax benefit and hence is recommended for high salaries.

Also Read: 13 Tax Free Components You Must have in Salary

Tax Efficient Salary Structure

Tax Efficient Salary Structure

Income Tax Calculation for Salary (FY 2016-17):

Below is the income tax calculation for above salary.

Calculating Income Tax for Salary Income - FY2016-17

Calculating Income Tax for Salary Income – FY 2016-17

Download: Excel based Income Tax Calculator for FY 2016-17 [AY 2017-18]

Following salary components are tax exempt:

  • Transport Allowance/Car Maintenance
  • Meal Coupons
  • NPS (Employer Contribution)
  • EPF (Employer Contribution)
  • Mobile Phone and Internet Bill Reimbursement
  • Uniform Allowance
  • Children Education/Hostel Allowance
  • Newspaper/Journal Allowance
  • Gift voucher
  • Medical Reimbursement
  • Leave Travel Allowance

Also Read: 25 Tax Free Incomes & Investments in India

Tax Deductions:

You can claim following tax deductions.

Section 80C/80CCC/80CCD (Rs 1,50,000): Investment in EPF, ELSS, PPF, FD, NPS, NSC, Pension Plans, Life Insurance, SCSS, SSA and NPS. Also includes Home Loan Principal repayment, Tuition Fees, Stamp Duty (Best Tax Saving Investments u/s 80C)

Section 80CCD(1B) (Rs 50,000): Investment in NPS (Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)

Section 24: Interest paid on Home Loan for Self occupied homes. No Limit for Rented house.

Section 80EE: Additional exemption on Home Loan Interest for First time home buyers. (Budget 2016)

Section 80E: Interest paid on Education Loan. No upper/lower Limit! (Tax Benefit on Education Loan (Sec 80E))

Section 80CCG: 50% of investment in RGESS approved stocks & mutual funds. Max investment limit is Rs 50,000 (RGESS – Save Taxes up to Rs 25000)

Also Read: 3 Tax Payers Who would Pay Higher Income Tax after Budget 2017

Section 80D: Premium payment for medical insurance for self and parents. Also includes Rs 5,000 limit for preventive health checkup (Making Sense of Tax Benefit on Health Insurance u/s 80D)

HRA or Home Loan?

We have assumed that you can get Rs 2 lakh tax benefit on Rent paid or interest paid on home loan. However you can claim both simultaneously too, which would give you more tax benefit. (8 Questions about Tax Exemption on HRA)

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