How to pay Zero Income Tax on your income is one of the important questions many people ask on my YouTube Channel. You can make use of Tax Rebate under Section 87A, according to which if your taxable income is Rs. 5 lakh in Financial year 2023-24 with old tax regime, your tax liability is zero. And with new tax regime, if your taxable income is up to Rs. 7 Lakh, your tax liability is zero. This is possible by availing the benefit of Tax Rebate under Section 87A.
Let us understand how you pay Zero Income Tax with tax rebate 87A in more detail.
Zero Income Tax with Tax Rebate under Section 87A Video
Watch below video to understand the zero income tax concept with examples.
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What is Tax Rebate Section 87A?
- Tax Rebate under Section 87A is a concept of giving relief to the Indian citizens having lower incomes in a financial year
- So in old tax regime, if your taxable income is up to Rs. 5 lakh, your income tax according to 5% tax slab will be Rs. 12,500. This tax will be nullified by Tax Rebate under Section 87A, which has limit of Rs. 12,500, and hence you don’t have to pay any tax
- Please note that in case your income is above Rs. 5 lakh in financial year, you have to pay this 5% slab (Rs. 12,500 tax), along with the tax on income above Rs. 5 lakh and include cess of 4% as well. In such case where income is above Rs. 5 lakh, you won’t get tax rebate 87A benefit under old tax regime.
- On the other hand, with new tax regime, the limit of taxable income is Rs. 7 Lakh, So based on new tax slab rates, on income of Rs. 7 lakh, your income tax will be Rs. 25,000 which will be nullified by tax rebate 87A that provides you maximum Rs. 25,000 as rebate under old tax regime
- Please note that if your income goes above Rs. 7 lakh in financial year, this Rs. 25,000 have to be paid as income tax in new tax regime so no relief will be provided in such case
And above are certain points based on which tax rebate under section 87A works.
ALSO READ: Income Tax Calculation Examples 2023-24
Tax Rebate under Section 87A Eligibility
What defines your eligibility for tax rebate under Section 87A? We can easily identify this based on the tax regimes:
- Old Tax Regime: You are eligible for tax rebate 87A in old tax regime only when your taxable income is Rs. 5 lakh or below in FY 2023-24
- New Tax regime: You are eligible for tax rebate 87A in new tax regime only when your taxable income is Rs. 5 lakh or below in FY 2023-24
Above limits can be extended if you are salaried employee or pensioner, since you get standard deduction of Rs. 50,000 as flat deduction in both tax regimes.
Limits of Tax Rebate under Section 87A
The limits of tax rebate 87a is mentioned below:
- Old Tax Regime: Tax Rebate 87A limit is Rs. 12,500, when your taxable income is Rs. 5 lakh or below
- New Tax regime: Tax Rebate 87A limit is Rs. 25,000, when your taxable income is Rs. 7 lakh or below
How to pay Zero Income Tax on Income?
Now coming to an important question, how do you pay zero income tax on your income?
So based on taxable limits mentioned above of Rs. 5 lakh and Rs. 7 lakh in old and new tax regime respectively, you don’t have to pay any income tax.
But what if your income is above these limits? In this case you can make investments and claim deductions after using various tax saving options.
Most of the tax saving options are available only in old tax regime, since new regime is already given the advantage of reduced tax slab rates.
Below is the table showing how much deductions you have to make in old tax regime to reduce your taxable income:
| Income | Deductions to claim for Zero Income Tax |
|---|---|
| Rs. 5,00,000 | Rs. 0 |
| Rs. 6,00,000 | Rs. 1,00,000 |
| Rs. 7,00,000 | Rs. 2,00,000 |
| Rs. 8,00,000 | Rs. 3,00,000 |
| Rs. 9,00,000 | Rs. 4,00,000 |
| Rs. 10,00,000 | Rs. 5,00,000 |
So as seen in above table, after subtracting deductions from income, your taxable income will be Rs. 5 lakh with old tax regime on which you will be eligible for tax rebate 87A and don’t have to pay any tax!
Is 10 lakhs income zero tax?
For income of Rs. 10 Lakh, and only considering standard deduction of Rs. 50,000, your income tax will be Rs. 106600 with old tax regime and Rs. 54600 with new tax regime.
But you can make your income tax as zero by claiming deductions in old tax regime. You need to claim deductions of Rs. 5 lakh to get your taxable income as Rs. 5 lakh so that your income tax will be zero.
Below is a video showing same with calculations.
Zero Income tax up to 11 lakh income Video
Watch more Videos on YouTube Channel
How to pay 0 tax on 15 lakh salary?
On Rs. 15 lakh income, you need to make at least 10 lakh of investments and claim them as deductions under various sections, so that your taxable income will be Rs. 5 lakh, based on which you will be eligible for tax rebate 87A and your income tax will be zero.
Read this article on various Deductions Sections allowed in old tax regime.
Is 0 to 7 lakhs no tax?
Yes with new tax regime, you don’t have to pay any income tax on income up to Rs. 7 lakh. But with old regime, the limit is up to Rs. 5 lakh taxable income. So if your are opting for old tax regime which allows various deduction options, you can claim Rs. 2 lakh as deductions so that your taxable income becomes Rs. 5 lakh and you don’t pay any tax on such income.
Conclusion
So to conclude, it is important that you get your taxable income to Rs. 5 lakh or less to pay zero income tax with old tax regime. And with new tax regime, the taxable income should be Rs. 7 lakh or below for zero income tax.
In both these cases, tax rebate under Section 87A will be allowed that will help you to save your income tax.
Some more Reading:
- Equity Mutual Funds Taxation
- Monthly Income Plan in Mutual Fund
- Rs. 2000 Sensex Returns in Last 15 Years [Video]
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Income Tax Calculator App – FinCalC
For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.
What you can do with this mobile App?
- Calculate Income Tax for new FY 2024-25 and previous FY 2023-24
- Enter estimated Investments to check income tax with Old and New Tax Regime
- Save income tax details and track regularly
- Know how much to invest more to save income tax
- More calculators including PPF, SIP returns, Savings account interest and lot more
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