Ultimate Income Tax Saving and Tax Planning Guide - By Asset Yogi - YouTube

An annual salary of Rs 16 lakhs and income tax zero

What are you saying? It's not possible

My reaction would also be the same

It's the same as the car manufacturing companies claim 25 Kmpl mileage

But when we check it, practically it is 18-19 Kmpl in city and traffic conditions

So is it practically possible to pay zero tax with a salary of Rs 16 lakhs

If I tell you in a summary, it is definitely possible

What all things we should implement practically and how can we do tax savings

We have to decide that

But I'll show you through calculations that zero tax is possible on Rs 16 lakhs salary

And the purpose of this video is not to claim that every person with Rs 16 lakhs salary can pay zero tax

The main purpose is to teach all the tax saving options

That I will discuss line by line with you

On the top, we'll take annual CTC and then we'll see line by line that where we get tax saving options

What are the exemptions and deductions available

With that, I'll add some bonus tips through which tax savings can be maximized

In this video, we'll be discussing that how can we maximize tax savings with salary

But I did one more video in which I discussed that how can we do maximum tax saving from investment and trading

So you can watch that video as well

Many people have investment and trading along with the salary

In the end, we'll see that how can we do tax filing and tax planning through a software

Video is going to be very interesting and I am sure you'll definitely learn something new

Stay tuned!

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The first step for tax planning is to choose between the new and the old tax slab

That with which one you want to go

A very basic rule is here

The people who are in the high income bracket should choose the old tax slab

Because we have many investment and deduction options there

Under the new tax slab, no such deductions are available

That means tax will be applicable on the income

But tax rate is less in the tax slabs

That means there is already a rebate in the tax rates

So the new tax slab should be chosen by the people who are in the low income bracket

Or those who don't want to do any investment planning and they don't want to be in any hassle

I did a detailed comparision of the old and new tax slabs so you can watch that as well

Let's directly go on excel and see line by line that what all exemptions do we get after the annual CTC

what all deductions can we claim and how can we maximize the tax savings

Let's say the annual CTC (Cost To Company) of a person is Rs 16 lakhs

In 90% of the private companies, the salaries are given on the basis of CTC

So if the CTC of a person is Rs 16 lakhs, according to the new wage code, companies have to keep a minimum salary as

50% of the annual CTC

So we considered that here

It will be imposed from FY 2022-23

If we take 50% of the annual CTC, the basic salary is Rs 8 lakhs

Firstly, there is an exemption. Many companies provide a facility of Provident Fund

So the minimum requirement for EPF is Rs 15,000, i.e Rs 1800 is the minimum requirement

But for maximum tax saving, most of the companies give an option to cut down the PF

So you get tax exemption on employers contribution on up to 12% of basic

So I considered that here

This option is available in most of the companies

So let's take 12% of basic. Rs 96,000 are exempted

After decreasing that, the gross salary remains Rs 15,04,000

After this, we have exemptions under section 10 on which no tax is imposed

What are these exemptions?

HRA, which I assumed as 25% of CTC

Let's assume approximately

When we live on rent, we can give 25-30% of the salary for rent as a thumb rule

So I assumed 25% of the CTC in a way so that we can take the HRA component as tax exemption

However, there is a detailed rule for it

The actual HRA you take or Rent-10% of your basic salary

Or 40% or 50% of your basic salary

The minimum out of these 3 is considered

So I assumed approximately 25% of CTC on which we want to take the tax exemption

So that is around Rs 4 lakhs

Many people have a confusion that can we claim HRA if we're living in our own house

If you own a house and you're living in it, you cannot claim HRA

In that case, you can claim a tax deduction on the interest or principal portion of your home loan

But there are situations in which people are living in different cities

For example, some people own a house in Delhi but they live in Gurgaon

If they bought this house on loan then they can claim the principal interest

With that, if they are living in Gurgaon on rent, then they can claim it's HRA also

Similarly, people can live in distant cities

If a person has a house in Delhi but he's doing a job in Mumbai

Then he can pay HRA there and here he can claim home loan principal and interest deduction

And I would like to give one more bonus tip. There are many people who live with their parents

And their house is in another city. In this case, they can pay the rent to their parents

What is its benefit?

Firstly, you'll get an HRA deduction claim

Secondly, if your parents don't have any income

So no income tax will be applicable up to Rs 5 lakhs and it will be 0.

Or if you are in the 30% income tax bracket

But your parents are in the 10% income tax bracket

Then 20% tax can still be saved

Then comes children's education allowance

It is Rs 100 per month and if you have 2 children then you can claim Rs 2400

There is a children's hostel allowance which is around Rs 7200 for 2 children, i.e Rs 300 per month per kid

However, it is not a very big amount so I can remove it but first, let's see the final calculations

Then comes LTA which is Leave Travel Assistance/Concession

In some companies, it is called LTC

So you can claim it for 2 years in any 4 years

Let's say you are on a holiday

So the bonus tip is that you can claim the LTA of such a holiday trip in which you travelled maximum

Let's say you have 4 members in your family and you all travelled by air and its expense was Rs 50,000

So you should claim the transportation fair in this case

So I assumed Rs 50,000 fare for air travel for a family of 4 and we deducted it

Many companies try to save people's taxes in the form of reimbursement

But reimbursement is not a part of your salary

So I considered it 0 because I don't want to take any unrealistic figures

So now the remaining salary is Rs 10,44,400

Now let's talk about the other available deductions

Till now we discussed about the exemptions

Firstly, we get a standard deduction. You don't have to do anything because government is providing this

and Rs 50,000 will be deducted from your net salary

So we considered it

Then comes section 24 which is called loss from house property

Many people have confusion here

Many people think that the interest of their home loan is Rs 2 lakhs then they will get a tax rebate on it

It is not true

Let's say you live somewhere else, you are claiming HRA and you have a house

Then you have to consider the rent of that house

Whether it is on rent or not

Notional rent concept is applied here

How much is the average rent in that locality

Let's say if the rent is Rs 10,000

Then you have to add Rs 10,000 in your income

So how do we get a rebate here?

Whatever your rent is, notional or actual

We'll take it and subtract the property tax from it

Then 30% of the rent is considered as the annual maintenance

So that is also deducted by the government

Then the interest portion of the home loan is subtracted

So if this is positive and you're making a profit then you're not getting any tax rebate

In fact, this amount is being added in your income

Rather you would have to pay the taxes

So when you will be able to claim the rebate?

When the interest will be more than the rent portion

So how much can we claim for a loss from house property?

The maximum limit is Rs 2 lakhs

That means we get up to Rs 2 lakhs tax deduction for loss from house property

So I considered it as the maximum

If we take rent of a house Rs 10,000 approximately

And if a person took Rs 30 lakhs loan then 25-30 thousand would be going as interest

So loss from house property is approximately Rs 2 lakhs

So I took this as an assumption

We are talking about maximum tax savings. Maybe your home loan interest rate is more or less than this

It depends. But we're talking about the maximum tax saving.

The next deduction is under section 80C which is the most popular deduction

All your investments with mutual funds or insurance, everyone tells about section 80C

But understand carefully that the total limit of all the options is Rs 1.5 lakh

What are these options?

In EPF, one is the employer's contribution which we already took above

This employer's contribution is not included

But the money which is deducted from your side in PF comes under this

So maybe your contribution is 10-12%

So you may get a tax rebate of 12% of basic

But the overall limit under section 80 C is Rs 1.5 lakhs

What are the remaining options?

If the total amount is less in EPF, you can invest in PPF (Public Provident Fund)

We can include the principal of the home loan

Then we can invest in ELSS (Equity Linked Saving Scheme) which are a type of tax saving mutual funds

This is a very good option. However, there is a lock-in of 3 years

Then we have an option of ULIP (Unit Linked Insurance Plan)

Not a very good product according to me but if you've invested then you should claim your tax savings

The life insurance premium is also considered under 80C

Sukanya Samriddhi Yojana is also a very good product

If you have a daughter then you can plan this for her

You get tax savings in National Saving Certificate. However, the interest rate is not good enough

Post office FD and 5 year FD

The interest rate is not high enough but you get tax savings in it

If you are paying the tuition fee for your children, then you can claim it under section 80C

NPS Sec 80CCD (1A)

NPS means National Pension Scheme

If you've invested in it then it is also considered under Sec 80C

I'll discuss 2 more clauses about NPS in which your savings can be maximized

There's no such benefit of NPS under the 1.5 lakh limit of Sec 80C

But we can claim an additional tax rebate of Rs 50,000 under Sec 80CCD (1A)

And if you invest Rs 50,000 in NPS other than 80C, then you get a tax rebate on that also

We can definitely take that option as well

Then comes one more option is NPS. Here, we were investing our own money

But here, the employer can also contribute to it

In many companies, they make a flexible structure

In which you can opt if you want to invest more in NPS and employer will also contribute to it

So the employer can add up to 10% of basic in NPS

Sorry, it's not basic. It is 10% of your net salary

So 10% of net salary is Rs 1,04,000

This is also a very good option and you're getting a higher limit

Apart from this, there are more options

Under Sec 80D, you can claim up to Rs 25,000 rebate on medical insurance premium or health insurance

And if there's any senior citizen in your house, this limit becomes Rs 50,000

But I considered Rs 25,000 limit here

Then comes Sec 80E, interest on education loan

If you took an education loan for higher education, then you get tax rebate on its interest portion

I considered Rs 50,000 approximately

Let's say a person took a loan of Rs 5-6 lakhs

So if a 10% annual interest rate is charged, then Rs 50,000 is almost there

So you can easily consider Rs 50,000 here

There was one more clause Sec 80EE for the people who took home loans in 2016-17

At that time, an additional rebate of Rs 50,000 was given on the interest

That was for a lifetime so if by chance you took a home loan in 2016-17, you can claim that rebate even today

Then comes Sec 80TTA, in which you can claim a tax rebate on interest on a savings account of up to Rs 10,000

So if I do all these calculations according to the Rs 16 lakhs CTC

Then now our taxable income is Rs 3,54,960

How much will be the tax applicable?

In the old tax slab, no tax is applicable up to Rs 2.5 lakhs

From Rs 2.5 - Rs 5 lakhs, there's a slab of 5% but if your overall income is less than Rs 5 lakhs

Then your income tax becomes 0 because you get a tax rebate of Rs 12,500

So under this planning, we're aiming to bring our income less than Rs 5 lakhs so that the tax applicable become 0

Now you will say that it is the same as 25 Kmpl mileage

And it is not practical

So now, let's try to make it a practical scenario because I agree with you

The interest on the savings account, Let's go reverse.

The interest in your savings account will be added to your income

We haven't considered it yet so let's take it 0.

Now let's talk about 80EE

90% of people might haven't taken a loan in 2016-17

So let's consider it as 0.

Till now, our tax is 0

If we talk about the interest on education loan, maybe many people would not take any education loan

But many people take it.

So the people who took education loan should definitely claim it but

Let's consider it 0 for the practical scenario.

Till now, the income is less than 5 lakhs

Let's see some more scenarios

Many people might not have children so let's make it 0

Anyways, it was not much amount

So let's consider it 0

Income is still less than Rs 5 lakhs

What are the main components?

We should definitely invest in EPF

We should definitely claim HRA

If you can claim LTA, you should definitely do it because it's a big amount

Everybody gets the standard deduction

If you took a home loan, you should definitely claim it

If you're planning for any property, you can take a home loan for it and reduce the tax

You should definitely claim 80C

Now it comes to NPS. It is such a segment in which some people want to invest and some don't

It is a retirement product so you need to understand that it is for the long term

So you can decide how much you want to invest

The medical insurance premium is also a product that everyone should take

So I will not reduce this

So even if I reduce Rs 25,000 more, the income tax applicable would still be 0

So practically, income tax can be easily 0 for a salary of Rs 16 lakhs

But there is a practical problem that the in-hand salary is now below Rs 5 lakhs

So is the money left is sufficient for all the expenses?

According to me, now he only has to spend on the normal expenses

Like grocery bills, utility bills

Because many expenses are already covered

Since HRA is claimed, so rent is already paid

Medical insurance and other insurance amount is already paid

EMI of home loan is already paid

And rest of the investments are also done

So the remaining money is just for the normal expenses

Let's make it more practical

You might say that the situation is tight in Rs 16 lakhs. So let's change it to Rs 15 lakhs

In this situation, the taxable income is Rs 4,11,500

Let's consider that this person doesn't want to invest much in NPS

In this, let's say that he only want to invest Rs 20,000 so let me write it here

The taxable income is still below Rs 5 lakhs

So I think anyone with an annual income of Rs 14-15 lakhs can bring down the taxable income below Rs 5 lakhs, i.e Income tax can be 0.

So we discussed line by line that how can we maximize our individual tax saving

Now I want to give one more bonus tip to you

Especially related to home loan

When we borrow a home loan, in many cases husband/wife is also working

You may want to buy a big house

If we're planning for a big house, we might take a big home loan

So in this case, we can take a joint home loan

Because of this, both can individually claim the interest and principal of the home loan

That means both will individually get a tax deduction

So in this video, we discussed mainly for the salaried class people

But many people also invest and trade

For that, I already made a video so you can watch it

We discussed long term capital gains, short term capital gains, how can we maximize our tax savings in that video

Now let's discuss that how can we do tax filing and planning easily with a software

Because many people are investing and trading along with the salary income or business income

Handling all these incomes together is a difficult task so you can use the QUICKO software

The link is in the description so you can sign up there and test it out

And I am recommending QUICKO because it is the only software that did a tie-up with all the brokerage houses

The income, profits or losses with a broker are all integrated

You get your income or profit/loss statement in one place

and it becomes very easy for tax filing

So that's it in this video

I am sure this video will be very helpful for your tax saving and tax planning

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