New tax regime
Looking at the new tax regime, it often seems that there are not many options to save tax. Because most of the exemptions like 80C have ended. In such a situation, a salaried person earning Rs 20 lakh usually has to pay tax of more than Rs 1 lakh. But with proper planning the picture can change completely.
Salary structure is a game changer
In the new tax regime, tax saving now depends more on your salary structure than investment. That is, how your CTC is designed decides how much tax you will pay. If there is a CTC of Rs 20 lakh and 50% of it is the basic salary i.e. Rs 10 lakh, then the tax can be reduced by adding some smart components to it.
These benefits will reduce tax
Mile Benefit: Rs 200 per mile, twice a day and for 22 days, about Rs 1.05 lakh annually Tax-free EPF contribution: 12% of the basic from the company, i.e. about Rs 1.2 lakh Tax benefit NPS (80CCD(2)): Company’s contribution up to 14%, additional rebate of about Rs 1.4 lakh
Individually these may seem small, but together they add up to a substantial tax-free portion.
Big benefit from car lease
Car lease has the biggest impact. If a car worth Rs 8 lakh is taken on lease for 2 years, then the annual expenditure is around Rs 4.23 lakh. When added to the salary structure, it becomes a tax-efficient perquisite. With this, the total deduction reaches around Rs 7.88 lakh, whereas without car lease it remains only Rs 3.65 lakh. If you already own a car, you can also claim fuel and driver expenses (logbook required).
How much will be the tax in the end?
According to ClearTax, after all these benefits the net income remains around Rs 12.11 lakh. Then after standard deduction of Rs 75,000, the taxable income is around Rs 11.36 lakh. Due to the tax rebate available at this level, your tax can be almost zero. At the same time, if you do not take car lease, then the taxable income will be around Rs 15.59 lakh and you may have to pay tax of around Rs 1.18 lakh.
What is the biggest learning?
In the new tax regime, there is no time to save tax by investing at the last moment. It is more important to create the right salary structure. According to experts, by adopting options like car lease, tax can be reduced to a great extent or even zero on a salary of Rs 20 lakh, which increases the in-hand salary and does not put any additional burden on the company.
