How to Pay 0 Tax on an Annual Salary of Rs 18,50,000: Expert Breakdown
As tax season approaches, many salaried professionals question how to optimize their taxes under the old or new regime. While the new regime offers simplicity with zero tax up to Rs 12.75 lakh (including standard deduction), the old regime still appeals due to a wide range of deductions and exemptions. This article explains, with expert-backed calculations, how you can legally bring your taxable income to zero on a salary of Rs 18.5 lakh per annum using the old tax regime.
Tax-Free Limit in Old Tax Regime
In the old tax regime, income up to Rs 5 lakh is tax-free after applying the Section 87A rebate.
- This is applicable for resident individuals with taxable income not exceeding Rs 5,00,000.
- With strategic deductions, even higher salaries can qualify for zero tax liability.
Most-Used Exemptions and Deductions
There are 70+ deductions available, making the old regime versatile for tax planning.
- The most commonly claimed is under Section 80C, allowing deductions for eligible investments and expenses.
- Other popular sections include 80D (medical insurance), 24B (home loan interest), and 80E (education loan interest).
Section 80C: Major Investment Deductions
Section 80C permits a maximum deduction of Rs 1.5 lakh from taxable income.
- Eligible investments include EPF, PPF, ELSS, NSC, SCSS, and Sukanya Samriddhi Scheme.
- After deducting Rs 1.5 lakh, your taxable income reduces to Rs 17,00,000.
Section 80D: Health Insurance Premiums
You can claim Rs 25,000 for self (below 60 years) under Section 80D.
- This brings the taxable income down to Rs 16,75,000.
- An additional Rs 50,000 is allowed for senior citizen parents, further reducing it to Rs 16,25,000.
Section 24B: Home Loan Interest
Homeowners can claim up to Rs 2,00,000 deduction on home loan interest under Section 24B.
- This lowers your taxable income to Rs 14,25,000.
Section 80E: Education Loan Interest
Interest on education loans is fully deductible under Section 80E.
- Assuming an interest of Rs 90,000, the new taxable income becomes Rs 13,35,000.
Standard Deduction for Salaried Taxpayers
All salaried employees receive a standard deduction of Rs 50,000.
- This further brings taxable income down to Rs 12,85,000.
NPS Contributions: Self and Employer
Under Section 80CCD(1B), an additional Rs 50,000 for self NPS contribution is deductible.
- Also, under Section 80CCD(2), employer’s contribution (10% of basic + DA) is also deductible—assumed here as Rs 1,08,000.
- Post-NPS deductions, taxable income is Rs 11,27,000.
HRA Exemption
Assuming Rs 6 lakh HRA received and Rs 6 lakh rent paid, Rs 4,80,000 is exempt under HRA rules.
- This brings the taxable income down to Rs 6,47,000.
Donations under Section 80G
You can claim donations up to 10% of basic salary—here, assuming Rs 40,000.
- This lowers the taxable income to Rs 6,07,000.
Reimbursements and Flexi-pay
Reimbursements like LTA (Rs 60,000), meal vouchers (Rs 43,200), and books/periodicals (Rs 21,600) total Rs 1,24,800.
- Deducting this brings the final taxable income to Rs 4,82,200.
Final Taxable Income and Liability
With final taxable income at Rs 4,82,200, you qualify for a full rebate under Section 87A.
- Tax liability = Rs 0 as income is under Rs 5 lakh post-deductions.
