Taxation

In this Article we will try to understand as to how we can have Tax Free Income of 20 lakhs for Professionals notified under the Income Tax Act by proper tax planning.

Section 44ADA of the Income Tax Act provides for the presumptive taxation for certain notified professionals having annual Gross Receipts upto Rs.50 Lakhs. Under this Section professionals can reduce their income tax liability considerably by availing the benefit of presumptive taxation given under this section.

Under this section, 50% of the annual income is allowed as Deemed Expenses and deducted from the Total annual Income. For example if your total annual receipts from the Profession are Rs.50 Lakhs, an amount of Rs.25 Lakhs shall be allowed as Deemed Expenses from this Income and you will have to pay tax only on balance Rs.25 Lakhs.

What is more interesting is that you will not have to maintain any Books of Account and you are not required to get your accounts audited.

What is more, if you Annual Gross Income is Rs.20 Lakhs then by doing proper tax planning, you need not pay any income tax. It means professionals with annual income of Rs.20 Lakhs can enjoy Zero Income Tax.

From the total annual gross income of Rs.20 Lakhs, you will be given Rs.10 Lakhs deduction towards Deemed Expenses. Out of the Balance Rs.10 lakhs, you can claim the following deductions:

Deduction under section 80C   1,50,000

Mediclaim for Self & Parents       50,000

Interest on Home Loan               2,00,000

Deduction under Section 80E    1,00,000

Total Deduction                           5,00,000

Balance Taxable Income             5,00,000

There is no income tax on balance income of Rs.5 lakhs in view of the Tax Rebate available under Section 87A of the Income Tax Act.

Rebate under Section 87 of the Income Tax provides a Tax Rebate equal to the amount of tax liability on Total Taxable Income of Rs.5,00,000

Also read : How to Earn Tax Free Salary of 20 Lakh ?

Bifurcation of Your Salary/CTC : People who are getting salary of around 20 Lakh per annum, often asking the Chartered Accountants and Tax Consultants about-How to Earn Tax Free Salary of 20 Lakh ? With proper tax planning you can earn salary of around Rs.20 lakhs and still may not be required to pay any income tax.

Yes you have read it right. You can have a salary upto Rs.20,00,000 per annum and still you will not be required to pay any Income Tax.

How this is possible-we will understand in this Blog.

There are several Deductions and Exemptions are available under the Income Tax Act. These Deductions and Exemptions will reduce your Total Salary Income. Apart from these Deductions and Exemptions, there are several other Benefits and Perquisites which can be part of your salary without attracting any income tax on the same.

We will now take an example of a salaries person who is getting total Salary of Rs.20,00,000 during the current financial year 2022-23.

We will bifurcate his total CTC of Rs.20 Lakhs in the following manner

Out of the total salary of Rs.20 Lakh, the following deductions/exemptions can be availed under the Income Tax Act :

Deduction under Section 80C 1,50,000
Deduction under section 80CCD(IB) 50,000
Mediclaim for Self & Parents 50,000
Standard Deduction 50,000
HRA 6,00,000
Interest on Home Loan 2,00,000
Gratuity 50,000
EPF 1,25,000
NPS 1,00,000
TOTAL 13,75,000

We can see that if we consider all these deductions and exemptions from Rs.20,00,000,the balance taxable salary shall be reduced to just 6,25,000

Out of the above amount of Rs.6,25,000/-, we can claim following tax free benefits/allowances :
Car Maintenance 25,000
Meal Coupons 25,000
Reimbursement of Mobile/Internet
Bill/Uniform/Children Education/
Hostel/Newspaper & Journal allowance
& LTC etc. 1,25,000
Total Benefits 1,75,000
We can see that if these benefits of Rs.1,75,000 are further deducted from the balance taxable salary of Rs.6,25,000, the balance taxable salary will be only Rs.4,50,000

There will be no Income Tax liability on the remaining salary of Rs.4,50,000 in view of the Tax Rebate available under 87A of the Income Tax Act.
Practically, it may not be possible for every person to get the above CTC structure. If you are able to follow the above Salary/CTC structure then you will not pay any Income Tax Act on salary of Rs.20 Lakh. However, if you are not able to follow the above salary/CTC structure, then also you will be able to save a huge amount of Income Tax in the legally permissible manner.

Also Read : Tax Free Income of Rs.20 Lakhs for Professionals

Tax Free Income of 20 Lakhs for Professionals – MoneyInsight