Zero Tax on Salary Income INR 20+ Lakhs? Legal Way Here…

The income tax provision applies to all the individuals who have been eligible for the income tax bracket as decided by the government of India. The income tax slab starts from INR 5 lakh for individuals having income yearly. There are also certain provisions and deductions which can be done to save the taxes on even the eligible income tax bracket.

Here in the blog post, we will be finding out ways to save income tax even if the income surpasses the INR 20 lakh limit which is seen as a high-income bracket and this CTC also attracts higher tax than the lower bracket. However, we would be doing a detailed analysis of this particular tax-saving technique and would recommend going once through the post.

We are here to help by making your tax liability zero even if your cost to the company (CTC) is Rs 20.41 lakhs per annum for FY 2023-24.

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Suggestion to Consider for making Income Tax Zero when Income is Rs 20.41 Lakhs Per Annum

• Include all those components that are tax-free
• For availing most of the benefits or HRA, House Rent Allowance (HRA) should be ideally 50% of the Basic Salary (40% HRA if an individual has rented a house in a non-metro)
• In the case of Car Maintenance, The said company could reimburse up to Rs 1,800 every month for a car that is less than 1600 CC (i.e. Rs 2,400 every month in case of bigger cars) in addition to Rs 900 every month for the driver’s salary by way of tax-free allowance
• Employees may have the option of making a to both EPF and NPS.
• Giving a Gift Voucher by a company on a birthday or anniversary that is worth Rs 5000 per annum is tax-free
• Companies purchased and owned Cars provide much more Tax benefits.

Disadvantage of the Salary Structure Discussed here

However, there is one drawback to the entire salary structure. The disadvantage or drawback is that the monthly payout shall be lower. However, it is better for the future to save more money. At this juncture, It is better to quote the words of Stock market magnate Warren Buffett. “If you buy things you don’t need, you will soon sell things you need.”

Illustration of Tax Efficient Salary Structure

Salary Components	Annual	Monthly	Remarks
Basic Salary	9,54,000	79,500	Fully Taxable
House Rent Allowance	6,36,000	53,000	It is Partially Tax exempted
Car Maintenance	28,800	2,400	They are Tax-free if bills are submitted
Meal Coupons	26,400	2,200	Tax free till Rs 50 per meal (22 working days)
EPF  Contribution by EMployer	1,27,200	10,600	Tax-free up to 12% of the Basic Salary
NPS (Employer Contribution)	1,06,000	8,833	Tax-free up to 10% of the basic salary
Phone & Internet Bill Reimbursement	36,000	3,000	It is Tax-free if bills are submitted
Uniform Allowance	24,000	2,000	It is Tax-free if bills are submitted
Children’s Education/Hostel Allowance	4,800	400	It is Tax-free if bills are submitted
Newspaper/Journal Allowance	12,000	1,000	It is Tax-free if bills are submitted
Gift voucher	5,000	–	Tax-free up to Rs 5000
LTA (Leave Travel Allowance)	30,000	–	It is Tax-free if bills are submitted
Gratuity	50,962	–	Paid while leaving the company
Cost to Company	20,41,162	1,62,933	–

Below is the illustration of nearly 20.41 lakhs per annum.

Sr. Number	Calculation of Income Tax on Salary	Applicable for FY 2021-2022
1	Total Cost to Company	20,41,162
2	Tax-Free Components Car MaintenanceMeal CouponsNPS (Employer Contribution)EPF (Employer Contribution)Mobile Phone and Internet Bill ReimbursementUniform AllowanceChildren Education/Hostel AllowanceNewspaper/Journal AllowanceGift voucherLeave Travel Allowance	4,00,200
3	House Rent Allowance(Rent Paid is Rs 53,000 and that too in Metro City	6,36,000
4	Standard Deduction (It was increased to Rs 50,000 in the Budget 2019)	50,000
5	Gratuity (Not part of salary but component of CTC and is non-taxable)	50,962
6	Tax DeductionsSection 80C Exemption – 1,50,000NPS 80CCD(1B) Tax Exemption – 50,000Medical Insurance (Self & Parents) – 60,000Interest on Education Loan – 50,000	3,10,000
7	Home Loan Exemption	2,00,000
8	Income after Deduction[1- (2+3+4+5+6)]	3,94,000
9	Basic Tax Exemption	2,50,000
10	Taxable Income[8-9]	1,44,000
11	Income Tax [5% of 10]	7,200
12	Rebate u/s 87A	7,200
13	Tax Payable [11-12]	0

Tax-Exempted Salary Components

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

Takeaways About Tax Deductions

An Individual could claim the following Tax Deductions:

• Section 80CCD(1B) (Rs 50,000): Investment in the NPS (Shall you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)
• Section 80C/80CCC/80CCD (Rs 1,50,000): The Investment in the EPF, PPF, The Pension Plans, ELSS, FD, NPS, NSC, SCSS, Life Insurance, SSA and NPS. Also includes Tuition Fees, Home Loan Principal repayment, and Stamp Duty (The Best Tax Saving Investments under section 80C.
• Section 80E: The Interest paid on the Education Loan. There is no upper/lower Limit! (Tax Benefit on the Education Loan (Sec 80E))
• Section 24: The Interest paid on the Home Loan for the Self-occupied homes. No Limit for the Rented house.
• Section 80D: The Premium payment for the medical insurance for an individual and his parents. It further includes a Rs 5,000 limit for the preventive health checkup (Thus Making Sense of the Tax Benefit on Health Insurance under section 80D)

Glimpse of Monthly Pay Slip (After the Income Tax on the Salary):

Let’s have a glimpse of the salary slip when you have a package of Rs 20.41 lakhs and your tax payable is zero.

Gross Salary: 1,32,500

• Basic Salary: Rs 79,500
• HRA: Rs 53,000

Deduction: Rs 30,033

• EPF(Employer Contribution) – 10,600
• NPS (Employer Contribution) – 8,833
• EPF(Employee Contribution) – 10,600
• The Income Tax – 0
• The Net Salary= Rs 102,467 [1,32,500 – 30,033]

The Reimbursement (on the submission of bills) – Rs 1,35,600 (Yearly)

• Car Maintenance – 28,800
• Uniform Allowance – 24,000
• The Phone and the Internet Bill Reimbursement – 36,000
• Newspaper/Journal Allowance – 12,000
• Hostel Allowance/ Children Education – 4,800
• LTA (Leave Travel Allowance) – 30,000

Gift/Food Coupon – Rs 2,200 monthly

• Additionally, employees would get the Food Coupons that are worth Rs 2,200 every month

What does Retirement Savings Look Like?

The good aspect or Unique Selling Proposition of the above-mentioned salary structure is that a large component of salary is apportioned to the retirement savings

Component	Employee Contribution	Employer Contribution	Total Contribution
EPF (12% of basic salary)	10,600	10,600	21,200
NPS (10% of basic salary)	0	8,833	8,833
Total	10,600	19,433	30,033