First-Time Tax Payer? Here’s How You Can Pay Zero Tax

By | January 8, 2018

Who doesn’t feel the pinch of giving away taxes? Here’s what you could do to do away with it. Tax evasion is a crime, tax avoidance is not.

First-Time Tax Payer? Here’s How You Can Pay Zero Tax

Tax evasion is a crime, tax avoidance is not. First-time taxpayers who find it difficult to part ways with their hard earned money can take help of various government allowed exemptions and provisions to reduce their tax liability. If your income is less than Rs. 10 lakh, your tax payment could reduce to zero through investments.

In this article, we take a look at various investments that can help you pay zero tax.

  1. Investments Under Section 80C

You can save tax up to a maximum of Rs. 1.5 lakh a year through investments eligible under Section 80C. Some such investments are premiums paid towards Life Insurance plan, repayment of the principal component of Home Loan, investments made towards PPF, NSC, ELSS, NPS, Tax saver FD, five-year post office time deposits, senior citizens savings scheme and Sukanya Samriddhi Scheme.

  1. Health Insurance Premiums

The premiums you pay on Health Insurance plans for yourself and family qualify for deductions under Section 80D.

You can get a deduction of up to Rs. 25,000 a year on Health Insurance premiums paid for yourself and family. If you pay a premium for Health Insurance of dependent parents, you get an additional Rs. 25,000. If your parents are senior citizens, the amount goes up to Rs. 30,000 a year. Thus, you can claim a total exemption of Rs. 55,000 a year if you pay a premium for self and parents who are senior citizens.

  1. NPS For Additional Tax Benefits

You get an additional tax exemption if you invest in the National Pension Scheme popularly called NPS.  You enjoy a maximum deduction up to Rs. 1.5 Lakhs a year under Section 80C.

You also get an exemption over and above this under Section 80CCD(1B) up to Rs. 50,000 a year.

  1. Rebate Under Section 87A

You get a maximum rebate of Rs. 2,500 a year under Section 87A. You get this rebate only if your total income, less all deductions under Section 80, is equal to or less than Rs. 3,50,000.

  1. Home Loan Interest Repayment

Interest payment on a Home Loan is eligible for tax deduction under Section 24 if the property is used for a residential purpose. You can claim exemption up to a maximum of Rs. 2 lakh a year.

First-time home buyers can claim an additional tax deduction of up to Rs. 50,000 a year on Home Loan interest under Section 80EE, subject to certain conditions. Therefore, the total deduction can go up to Rs. 2.5 Lakh a year on Home Loan interest payments if you are a first time home buyer.

  1. Tax Benefits On Donations

Apart from these investments, you can also save tax through charitable activities. Donations to specific relief funds and charitable institutions are eligible for tax deduction under Section 80G. You can claim up to 100% on the amount donated to specific relief funds, with or without any upper limit.

Tax Payable On A Salary Of Rs. 8 Lakh Without Any Deductions:  

Income (Rs) Tax
0 – 2,50,000 NIL
2,50,000 – 5,00,000 5% of 2,50,000 = 12,500
5,00,000 – 8,00,000 20% of 3,00,000 = 60,000
Total Tax Liability 12,500 + 60,000 = 72,500

 Tax On A Salary Of Rs. 8 Lakh After Deductions And Exemptions:

Total Income Rs 8,00,000
Less: Section 80C Rs 1,50,000
Less: Section 80D Rs 55,000
Less: Section 80CCD(1B) Rs 50,000
Less: Interest on Home Loans (first time home buyer) Rs 2,50,000
Taxable Income Rs 2,95,000
Tax liability on 0 – 2,50,000 0
Tax liability on the amount between Rs 2,50,000 and Rs 2,95,000 5% of Rs 45,000 = Rs 2,250

 You can reduce the tax liability to zero by using the tax rebate under Section 87A.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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