Tax free income : In a major relief for middle-class taxpayers and salaried professionals, the latest tax provisions now allow individuals to legally earn up to ₹19.20 lakh annually without paying a single rupee in income tax. By smartly combining exemptions, deductions, and rebates under the Income Tax Act, individuals can effectively bring their net taxable income down to zero. If used correctly, this strategy can be a game-changer for millions of Indians looking to maximize their earnings and savings.
Let’s break down how this works and how you can take full advantage of it.
Understanding the ₹19.20 Lakh Tax-Free Income Structure
The ₹19.20 lakh figure is not an official government slab, but rather a result of combining multiple benefits allowed under the Income Tax Act. These include:
- Standard deduction
- Section 80C deductions
- NPS and health insurance exemptions
- HRA and LTA benefits
- Home loan interest deductions
- Section 87A rebate
- Agricultural income exemption
Let’s take a closer look at the various components that help achieve zero tax liability.
Major Tax Exemptions and Deductions You Can Use
Here are the key components that help reduce the taxable income significantly:
- Standard Deduction: ₹50,000 for salaried individuals.
- Section 80C: Deduction up to ₹1.5 lakh on investments like PPF, EPF, ELSS, LIC, etc.
- Section 80D: Up to ₹75,000 deduction for medical insurance (family + senior citizen parents).
- NPS (Section 80CCD(1B)): Additional ₹50,000 deduction.
- House Rent Allowance (HRA): Varies by city and rent amount, often up to ₹2.5–3 lakh.
- Leave Travel Allowance (LTA): Up to ₹1 lakh for domestic travel expenses.
- Home Loan Interest (Section 24b): ₹2 lakh deduction on self-occupied property.
- Education Loan Interest (Section 80E): Entire interest amount deductible.
- Section 87A Rebate: Up to ₹12,500 rebate for taxable income up to ₹5 lakh.
- Agricultural Income Exemption: Entire income exempt (conditions apply).
When these are applied strategically, your taxable income drops well below the threshold—even if your gross income is as high as ₹19.20 lakh.
Full Example: How to Save Tax on ₹19.20 Lakh Salary
Here’s a table showing how this works:
| Component | Amount (₹) | Tax Benefit Section |
|---|---|---|
| Gross Salary | 19,20,000 | – |
| Standard Deduction | -50,000 | Standard Deduction |
| Section 80C (EPF, PPF, LIC, ELSS etc.) | -1,50,000 | Section 80C |
| NPS Contribution | -50,000 | Section 80CCD(1B) |
| Health Insurance Premium | -75,000 | Section 80D |
| HRA Exemption | -2,50,000 | Section 10(13A) |
| LTA Exemption | -1,00,000 | Section 10(5) |
| Home Loan Interest | -2,00,000 | Section 24(b) |
| Education Loan Interest | -50,000 | Section 80E |
| Other Allowances (Books, Uniform, Travel) | -50,000 | Based on employer allowances |
| Agricultural Income | -3,00,000 | Exempt |
| Effective Taxable Income | 5,45,000 | After all deductions |
| Section 87A Rebate | -12,500 | Section 87A |
| Final Tax Liability | ZERO | Fully exempted |
This structure is perfectly legal and used widely by tax planners and professionals. The key is to plan your investments and expenses smartly.
Top Tax-Saving Instruments to Use Effectively
To achieve this level of tax saving, you must utilize various schemes and plans that fall under the 80C and other sections. Here are the most effective ones:
- Public Provident Fund (PPF): Long-term, tax-free returns with government guarantee.
- Employee Provident Fund (EPF): Automatically deducted for salaried individuals.
- Equity-Linked Saving Scheme (ELSS): High-return mutual funds with 3-year lock-in.
- National Pension Scheme (NPS): Additional deduction of ₹50,000 and retirement benefits.
- Life Insurance Premiums: Can include LIC, Term Plans, or ULIPs.
- Sukanya Samriddhi Yojana: For girl child, offers triple tax benefit.
- Health Insurance for family and parents: Up to ₹75,000 deduction.
Home Loan EMI (Interest Component): Significant benefit under Section 24(b).
Table: Comparison of Investment Options Under 80C & Others
| Investment Option | Lock-in Period | Returns | Risk Level | Tax Benefit |
|---|---|---|---|---|
| PPF | 15 years | 7.1% (approx) | Very Low | Section 80C |
| ELSS | 3 years | Market-linked | Moderate-High | Section 80C |
| NPS | Till 60 yrs | Market-linked | Moderate | Section 80CCD(1B) |
| EPF | Till retirement | 8.15% (approx) | Very Low | Section 80C |
| Life Insurance Premium | Varies | Varies | Low | Section 80C |
| Health Insurance (Family) | Annual | N/A | Very Low | Section 80D |
| Home Loan Interest | 5-20 yrs | N/A | Low | Section 24(b) |
| Sukanya Samriddhi Yojana | 21 years | 8.2% (approx) | Very Low | Section 80C |
Use a combination of these to legally bring down your tax burden.
Common Mistakes That People Make While Planning for Zero Tax
Even though the laws support massive deductions, many salaried and self-employed individuals fail to benefit fully due to common mistakes:
- Not claiming all available deductions
- Missing deadlines for investment proofs
- Not understanding the difference between old and new tax regimes
- Forgetting to claim HRA or LTA
- Not filing agricultural income properly
- Not using NPS for the additional ₹50,000 deduction
- Skipping health insurance tax benefits
- Poor documentation for educational or home loan claims
Being aware and proactive is the key to unlocking full benefits.
Should You Choose the Old Regime or New Regime?
This tax loophole is applicable only under the old tax regime. If you opt for the new tax regime, most deductions (like 80C, 80D, HRA, etc.) are not applicable. The new regime has lower tax rates but removes almost all exemptions.
You should choose the old regime if:
- You can claim HRA, LTA, 80C, 80D, and home loan benefits
- You have dependents and family insurance policies
- You contribute to NPS or invest in ELSS/PPF
Only opt for the new regime if you have very minimal investments and deductions.
Earning ₹19.20 lakh annually and still paying zero tax might sound too good to be true, but it’s 100% legal and achievable with smart financial planning. By leveraging the full spectrum of deductions, exemptions, and rebates under the old tax regime, you can effectively bring your tax liability down to zero. Whether you’re a salaried employee, a business owner, or a freelancer, this method empowers you to retain more of your hard-earned money.
This article is for informational purposes only and not to be considered as financial or tax advice. Please consult a certified tax consultant or chartered accountant before making any investment or tax decisions. Tax laws are subject to change as per government policy updates.
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