How To Legally Pay Zero Tax On A Rs 19.2 Lakh Income Under The New Tax Regime

When it comes to filing taxes in India, choosing between the old and new tax regimes can be a complex decision. Both offer unique benefits and challenges depending on your salary, deductions, and exemptions. The old regime allows a variety of exemptions, such as House Rent Allowance (HRA), while the new tax regime, though offering lower tax rates, comes with fewer exemptions. In this article, we break down the key differences and guide you on how to make an informed choice between the two. According to tax experts, calculating your tax liability under both regimes is crucial to determining which one provides the most financial benefit for you.

Understanding the Old vs New Tax Regimes
The Indian government offers two tax regimes: the traditional old tax regime, which allows a range of exemptions and deductions, and the new tax regime, which features lower tax rates but limits exemptions. The choice between the two depends on your financial situation, investments, and salary structure.

Under the old tax regime, you can avail deductions such as HRA, insurance premiums, and interest on home loans. However, the new tax regime simplifies the tax process by eliminating most exemptions and reducing the tax rates across various income slabs. The decision to switch between the two depends on whether the exemptions and deductions you are eligible for in the old regime outweigh the lower tax rates in the new one.

Is it Mandatory to Inform Your Employer About Your Tax Regime?
Yes, employees must inform their employer about which tax regime they wish to opt for. Failure to do so results in the default tax regime being applied, which might not be the most beneficial for you. This is especially important if you wish to claim exemptions like HRA under the old regime. It’s essential to communicate your choice early in the financial year to avoid any complications during tax filing.

Tax Regime Benefits for Senior Citizens
Unlike the old tax regime, the new tax regime offers no special concessions for senior citizens. In the past, senior citizens benefited from higher exemption limits and deductions on certain incomes, but this advantage has been removed under the new structure. Therefore, there is no immediate financial benefit for senior citizens in the new regime.

Key Features of the New Tax Regime
The new tax regime provides significantly lower tax rates, making it appealing for individuals who do not rely on many exemptions. In this regime, there is no tax liability for income up to Rs 12 lakh. The progressive slabs ensure that the more you earn, the higher the tax rate, but it remains considerably lower than the old regime. For example, the tax rate for income between Rs 8 lakh and Rs 12 lakh is 10%, whereas, in the old regime, it could go higher when considering various deductions.

The new tax regime also allows tax-saving investments like the National Pension Scheme (NPS), which is a major perk for individuals seeking to save on taxes while investing for their future.

Paying Zero Tax on a Salary of Rs 19.2 Lakh

If your salary is Rs 19,20,000 annually, you may still be able to pay zero tax, provided you plan your finances carefully. Let’s break it down

• Standard Deduction: Under the new tax regime, a standard deduction of Rs 75,000 is available. So, from Rs 19,20,000, you subtract Rs 75,000, leaving you with Rs 18,45,000 as the taxable income.
  
• NPS Contribution: You can opt for the National Pension Scheme (NPS) and invest 14% of your basic pay. This amounts to Rs 84,000 in deductions under the new regime, reducing your taxable income further to Rs 17,61,000.
  
• Tax-Free Components: Flexi pay offers tax-free components, such as conveyance, entertainment, and uniform allowances. These total Rs 6,23,600, which brings the taxable income down to Rs 11,37,400.
  
• Home Loan Interest & Rental Income Set-Off: For those who own a house and have a home loan, the interest deduction (up to Rs 2,00,000) and rental income adjustments (up to Rs 60,000) can help lower the taxable income further. This brings the total taxable income to Rs 8,77,400.
  
• Other Deductions: Gift, family pensions, and other miscellaneous deductions of Rs 50,000 can be applied, reducing the taxable income to Rs 8,27,400.

Once you calculate your taxable income under these conditions, you can claim a rebate of Rs 25,000 for taxable incomes up to Rs 12 lakh. This can reduce your tax liability to zero.

Tax Regime Slabs: A Quick Overview

The new tax regime has clearly defined tax slabs, which make it easier to understand your tax obligations. Here’s a quick look at the new tax slabs

• Rs 0 - Rs 4 lakh: Nil
  
• Rs 4 lakh - Rs 8 lakh: 5%
  
• Rs 8 lakh - Rs 12 lakh: 10%
  
• Rs 12 lakh - Rs 16 lakh: 15%
  
• Rs 16 lakh - Rs 20 lakh: 20%
  
• Rs 20 lakh - Rs 24 lakh: 25%
  
• Above Rs 24 lakh: 30%

These lower rates make the new tax regime particularly appealing to those who do not claim many exemptions.

Surcharge and Final Thoughts
Under the new tax regime, the highest surcharge is capped at 25%, compared to 37% in the old tax regime. This is a major benefit for high-income earners as it significantly reduces the additional tax burden.

Ultimately, the choice of tax regime boils down to your financial profile. If you have multiple exemptions, the old regime might work better for you. However, if your income mainly consists of salary with few deductions, the new tax regime with lower tax rates may be a more beneficial option. Always consult with a financial advisor or tax expert before making your final decision.

Disclaimer: This article is for informational purposes only. Please consult a tax professional for advice tailored to your specific situation.