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Did you know you could pay zero taxes even if you earn more than ₹5 lakh? According to the current tax laws, there are three tax slabs depending on your income. To begin with, if your salary is ₹2.5 lakh or lesser, you don’t have to pay any taxes. If your salary is between ₹2.5 and ₹5 lakh, you will be taxed at 5%. If your salary is more than ₹5 lakh and less than₹10 lakh the tax liability will be equal to ₹12,500 plus 20% of total income exceeding ₹5 lakh and if your income is more than₹10 lakh then your will be taxed at 30%.
For this financial year, if your salary is ₹5 lakh, you can earn full rebate on your tax liability of ₹12,500. In the interim budget, the then finance minister had increased the rebate amount from the erstwhile ₹2,500. However, you should note that the rebate is not a tax exemption and you will still have to file your returns. The tax slab on income above ₹2.5 lakh continues for those who earn above ₹5 lakh. For instance, if your taxable income is ₹6.5 lakh, you still have to pay tax based on slab rate and you don’t get the rebate.
“Deduction of up to ₹1.5 lakh for investments made under section 80C covers investments in public provident fund (PPF), employee provident fund contribution, LIC insurance premium, ELSS of mutual funds, NPS contribution, five-year fixed deposits and national savings certificate (NSC). You can also claim the deduction under the limit of ₹1.5 lakh for payments made for tuition fees of children and repayments of housing loan," said Archit Gupta, founder and CEO, Cleartax. Thus, in the above example, cumulatively you can save ₹3 lakh and bring your income down to ₹5 lakh from ₹8 lakh, according to Gupta.
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