Using tax deduction of 1.5 lakh under section 80C to reduce Income Tax liability

Any individual who has an income of more than 2.5 lakh is expected to pay income tax as per the existing income tax slabs. The government also provides certain provisions wherein one can save tax. Tax deductions can help one reduce the taxable income, lowering their overall tax liability and thereby helping them save on taxes.

The income tax rate AY 2019-20 or FY 2018-19 for salaried individuals is as follows.

Income Tax Rate – Individuals less than 60 years

Taxable Income Tax Rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Income Tax Rate – Individuals between 60 years and 80 years

Taxable Income Tax Rate
Up to Rs. 3,00,000 Nil
Rs. 3,00,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Income Tax Rate – Individuals above 80 years

Taxable Income Tax Rate
Up to Rs. 5,00,000 Nil
Rs. 5,00,000 – Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Based on the above-mentioned tax slabs, individuals are required to pay Surcharge and Cess as follows.

  • Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
  • Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
  • Health & Education Cess: 4% of Income Tax.

What happens if you don’t invest (1.5 lakh) in tax saving options under section 80C

Let’s take an example of Mr. Anand and Mr. Brijesh.  Mr. Anand is an assistant manager with M/s Raheja Capital, earns Rs.12,00,000/- p.a. Mr. Brijesh is a human resource manager at CPMG, earns Rs.12,00,000/- p.a. and plans his taxation in an efficient manner by investing Rs. 1,50,000/- in the products that are listed under section 80C every year.

Let us see a comparison chart on their Total Tax Liability:

As we can see the tax liability of Mr. Brijesh has reduces significantly (Rs. 46,350/-) by investing in products which are eligible for tax deduction under section 80C, whereas Mr. Anand pay Rs. 46,350/- more tax than Mr. Anand inspite of having same salary/income.

 



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