What is the Maximum Tax Saving That You Can Avail?
Considering that you maximize your tax savings using investments, and voluntary spends, you may reduce your taxable income by Rs. 4,75,000 (details below) for FY 2019-20 (AY 2020-21.)
Rs. 4,75,000 includes the following commonly available deductions:
Disclaimer: This limit only includes, investments and expenses any taxpayer can voluntarily incur.
The amount of tax you end up saving through the investments and expenses above depends on your income. See the cases below to get an idea:
CASE 1
Shobhit is a 27-year old Business Analyst. His taxable income in the financial year 2019-20 is Rs. 7,50,000 (without TDS).
His tax liability for FY 2019-20 would be:
- Rs. 52,520*without tax saving investments (after standard deduction & deduction u/s 80TTA)
- Zero tax liability with maximum tax saving investments (after deduction u/s 80TTA and other deductions)
* as per the applicable tax slabs & cess
See Calculation Details
Without any tax savings, Shobhit’s net taxable income (Rs. 750,000) goes up into the 20% tax slab. Without tax saving investments his total tax would be:
However, with tax saving:
CASE 2
Rajni is a 40 year old businesswoman and runs her own clothing store. Her taxable income in the financial year 2019-20 is Rs. 15,00,000.
She will need to pay the following amount as tax on her income in FY 2019-20:
Rs. 2,69,880* if she does not invest or spend anything for tax saving (after deduction under Section 80TTA)
Rs. 137,280* if she maximizes her tax saving investments (after other deductions & deduction u/s 80TTA)
* as per the applicable tax slabs & cess
She can save Rs. 132,600 in direct taxes using tax saving investments.
See Calculation Details
Without any tax savings, Rajni’s net taxable income (Rs. 15,00,000) goes up into the 30% tax slab. Thus, the total liability of Rs. 269,880:
However, with maximum tax saving, the breakup of her net taxable income and tax implication is as follows:
**As Rajni is a businesswoman, she will not get the benefit of Standard Deduction of Rs. 50000. As the benefit of standard deduction is only provided to the salaried individuals.
Rajni can save up to Rs. 132,600 (Rs.269,880 – Rs.137,280) by maximizing her tax saving investments in F.Y. 2019-20.
CASE 3
Mukesh is 65 years old. He’s one of the Directors of a Consumer Electronics Firm. His taxable income in F.Y. 2019-20 has been Rs. 20,00,000
Mukesh will need to pay the following amounts as income tax in FY 2019-20:
Up to Rs. 3,95,200*without tax saving investments (after standard deduction & deduction u/s 80TTB)
Only Rs. 2,62,600*with maximum tax saving investments (after deduction u/s 80TTB & other deductions)
* as per the applicable tax slabs & cess
See Calculation Details
Without any tax savings, Mukesh goes up into the 30% tax slab with his net taxable income of Rs. 20 lakh. Thus, the total liability of Rs. 3,95,200:
**As Mukesh is a senior citizen, he can avail deduction on bank saving, post office interest up to Rs.50000 under Section 80TTB.
Minimum tax-exempt income is Rs. 300,000 for taxpayers between 60 and 79 Years of age
Although even with maximum tax saving, his net taxable income remains in the highest tax bracket, it reduces enough to reduce his total tax liability by little more than Rs. 132600:
**Under Section 80TTA, regular individuals can claim a deduction up to Rs.10000 only. As Mukesh is a senior citizen, he can avail deduction on bank saving, post office interest up to Rs.50000 under Section 80TTB.