New tax laws: excellent news! There won't be any taxes up to ₹7.80 lakh! Recognize how zero tax is calculated

New tax laws: excellent news! There won't be any taxes up to ₹7.80 lakh! Recognize how zero tax is calculated

New tax laws: excellent news! There won't be any taxes up to ₹7.80 lakh! Recognize how zero tax is calculated

Those who opt for the new tax system would be exempt from paying taxes up to Rs 7 lakh this time. You would still profit from the new tax system if your pay is up to Rs 7.80 lakh, even if the government has granted you tax exemption on salaries up to Rs 7 lakh under the new tax system. Let's examine how.

A new tax system was implemented by the government a few years ago, during the 2020–21 fiscal year. Under this, the tax rate was lowered but the number of income tax deduction slabs was somewhat expanded. In the current fiscal year (2023–2024), individuals who opt for the new tax system would not be required to pay any taxes above Rs 7 lakh. You would still profit from the new tax system if your pay is up to Rs 7.80 lakh, even if the government has granted you tax exemption on salaries up to Rs 7 lakh under the new tax system. Let's examine how.

To make the new tax system more appealing than the previous one, the administration made a few adjustments to the most recent budget. Up to Rs 3 lakh, you won't be required to pay any taxes under this. On the other hand, you will get tax exemption on Rs 3–7 lakh, or the remaining Rs 4 lakh, if your taxable income is up to Rs 7 lakh. In addition, to make it more alluring, the government has provided two different kinds of deductions.

1. Customary Subtraction

The previous tax structure gave employees a basic deduction of Rs 50,000. This implies that you will not be required to pay any tax on Rs 50,000, regardless of your wage. This was also a part of the previous budget's revised tax structure. This means that you will not be required to pay tax on your salary up to Rs 7.50 lakh, not Rs 7 lakh, since the standard deduction will remove Rs 50,000 from your taxable income.

2. National Pension System for Corporations

In addition to the basic deduction, you may get extra exemptions if you make NPS contributions via your employment. Under 80CCD, every employee on NPS is eligible for a tax exemption. Additionally, this has two sub-sections: 80CCD(1) and 80CCD(2). An additional sub-section of 80CCD(1B) is 80CCD(1). Under 80CCD(1) and 80CCD(1B), you get a refund of Rs 1.5 lakh and Rs 50,000, respectively, for this; but, under 80CCD(2), you will receive an income tax refund exceeding Rs 2 lakh.

How to use the 80CCD(2) extra exemption

You will be excluded from paying taxes on the NPS investment that your employer makes under this. By listing this investment as a business cost on their profit and loss statement, many firms are able to secure tax exemptions. Private company workers are eligible to contribute up to 10% of their base pay and dearness allowance in NPS, with no tax implications. In contrast, this percentage may as high as 14% for those who work for the government.

How will taxes be waived on salaries up to Rs 7.80 lakh?

Say you have a cargo worth Rs 7.80 lakh. Your base pay will be at least 50% of your CTC in such a scenario. In other words, your base pay was Rs 3.90 lakh. You may ask your employer to deposit 10% of it, or up to Rs 39,000, in a corporate NPS account under 80CCD(2), which exempts you from paying taxes. You would thus get a normal deduction of Rs 50,000 and a tax exemption of Rs 39,000 on corporate NPS if your income is Rs 7.80 lakh. This would result in a total exemption of up to Rs 89,000, lowering your taxable income to less than Rs 7 lakh (Rs 6.91 lakh), and it will also eliminate your tax obligation.

What actions are required to get this discount?

Most businesses provide NPS services. You may discuss investing in NPS with your company's HR department. Your monthly inhand payment will decrease as a consequence of this investment, which is deducted from your base pay. The benefit is that you will be eligible for more tax exemptions. Speak with HR once if your organization does not have an NPS facility; he will provide you guidance on this.