Income Tax Calculation: The last date for filing ITR has been extended by CBDT to 15 September. Along with the due date of ITR, you also have to pay income tax. If someone tells you that in the financial year 2025-26 (AY 2026-27) you will not have to pay any income tax on income up to Rs 20 lakh, then you may not believe it. But for this you will have to take advantage of the exemptions, deductions and rebates available in the old tax regime.
In the old tax regime, tax payers get many types of deductions and exemptions. Such as Section 80C, 80D, HRA etc. All these reduce your taxable income significantly. To pay zero tax on an income of Rs 20 lakh under the old regime, you will have to bring your taxable income to Rs 5 lakh or less. This will allow you to get the full rebate (Rs 12,500) under Section 87A.
For this, you first have to understand the CTC breakup of Rs 20 lakh. In this, your Basic Salary will be Rs 8 lakh (40% of CTC), HRA Rs 4 lakh, Special Allowance Rs 6.5 lakh and LTA Rs 1.5 lakh.
HRA depends on the salary structure, rent and city. Suppose HRA is 50% of the basic salary. In non-metro cities, HRA can be up to 40 percent of the basic salary. But you get tax rebate only up to 10 percent of the basic salary less than the rent you pay.
Suppose you paid a rent of Rs 5 lakh in the whole year. After deducting 10% of your basic salary i.e. Rs 80,000 from this, it becomes Rs 4.2 lakh. Whichever is the lowest among these three, that will be your HRA exemption. That means your HRA exemption is Rs 4 lakh.
From CTC of Rs 20 lakh, after deducting HRA of Rs 4 lakh, LTA of Rs 1.5 lakh and standard deduction of Rs 50,000, your taxable income comes down to Rs 14 lakh.
Apart from this, a deduction of Rs 1.5 lakh per annum can be made under section 80C of the Income Tax Act. To avail the benefits of section 80C, you can invest in schemes like PPF, NSC, ELSS and EPF. Under section 80 CCD (1B), your investment in NPS is tax free up to Rs 50,000. Apart from this, you can also claim 10 percent of your basic salary and DA under the employer’s NPS contribution. This exemption is available under section 80 CCD (2B).
Tax deduction can be claimed on medical insurance premium under section 80D. This deduction is up to Rs 50,000 per annum for senior citizens and Rs 25,000 for non-senior citizens. Under section 24(b), you can get a deduction of up to Rs 2 lakh from the interest paid on home loan for your residence in the old regime.
Under section 80G, one can get up to 50% or 100% deduction on donations made to certain charitable organizations. Apart from this, under section 80EEB, one can get up to Rs 1,50,000 deduction on interest on loan taken to purchase an electric vehicle.
In this way, out of Rs 14 lakh standard deduction, 1.5 lakh of 80C, 1.3 lakh of NPS (50,000 + 80,000), Rs 75,000 of medical insurance, Rs 2 lakh of home loan interest, Rs 85,000 of education loan, Rs 10,000 exemption on interest on saving account, Rs 1 lakh donation under 80G, Rs 1.5 lakh exemption on EV loan, total rebate becomes Rs 9 lakh.
In this way, your taxable income has now come down to Rs 5 lakh. In the old tax regime, there is zero tax liability on income up to Rs 2.5 lakh. Apart from this, there is 5 percent income tax on annual income of 2.5 to 5 lakh, which amounts to Rs 12,500.
Rebate is given by the Income Tax Department under section 87A. In this way, your taxable income is reduced to zero and you will not have to pay income tax. (All photo credit: Pixabay)
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