How to Pay 0 Income Tax on Rs 16 Lakh Salary? (FY 2018-19)

Salaried class have always complained of raw deal year after year in income tax laws. But the good news is you can still manage to pay Zero (NIL) income tax on salary of up to Rs 16 lakhs. All you need to have is right salary structure and invest in RIGHT Tax saving plans! We give you details below.

Tax Efficient Salary Structure:

Salary structure is very important to keep taxes low. The good news is most employers are partially flexible with salary structure. We give you one such sample salary structure for CTC (Cost to Company) of Rs 16 lakhs.

We have kept following points in mind:

  • Included all components which are tax free (Medical Reimbursement is No more Tax free)
  • For most benefit of HRA – it should be 50% of Basic salary (40% is good if rented houses are in non-metro)
  • Car Maintenance
    • The company can reimburse Rs 1,800 per month for car less than 1600 CC (Rs 2,400 per month for bigger cars) along with Rs 900 per month for driver salary as tax free allowance.
    • Transport Allowance is NO more tax free (Budget 2018) but Car Maintenance reimbursement is.
  • Employer can have option of subscribing to both NPS & EPF. Keeping both makes salary more tax efficient, though take home may go down
  • Gift Voucher worth Rs 5,000 per annum is tax free. Some companies give such vouchers at birthdays or anniversaries!
  • Company owned cars give much more tax benefit and hence is recommended for high salaries.

Also Read: 13 Tax Free Components You Must have in Salary

Tax Efficient Salary Structure Example
Salary Components Annual  Monthly    Remarks
Basic Salary8,50,00070,833 Fully Taxable
House Rent Allowance4,25,00035,417 Partially Tax Exempted
Car Maintenance28,8002,400 Tax Free if bills submitted
Meal Coupons26,4002,200 Tax Free up to Rs 50/meal (22 working days)
NPS (Employer Contribution)85,0007,083 Tax Free up to 10% of basic salary
EPF (Employer Contribution)1,02,0008,500 Tax Free up to 12% of basic salary
Phone & Internet Bill Reimbursement36,0003,000 Tax Free if bills submitted
Uniform Allowance24,0002,000 Tax Free if bills submitted
Children Education/Hostel Allowance4,800400 Tax Free if bills submitted
Newspaper/Journal Allowance12,0001,000 Tax Free if bills submitted
Gift voucher5,000 Tax Free up to Rs 5,000
LTA (Leave Travel Allowance)30,000 Tax Free if bills submitted
Gratuity40,865 Paid while Leaving company
Cost to Company16,69,8651,32,833

Download:Tax Planning ebook for Salaried for FY 2018-19

How to Pay 0 Income Tax on Rs 16 Lakh Salary?

How to Pay 0 Income Tax on Rs 16 Lakh Salary?

Income Tax Calculation for Salary (FY 2018-19):

Below is the income tax calculation for above salary.

S. No.Calculating Income TaxFY 2018-19
1Total Cost to Company16,69,865
2Tax Free Components

  • Car Maintenance
  • Meal Coupons
  • NPS (Employer Contribution)
  • EPF (Employer Contribution)
  • Mobile Phone and Internet Bill Reimbursement
  • Uniform Allowance
  • Children Education/Hostel Allowance
  • Newspaper/Journal Allowance
  • Gift voucher
  • Leave Travel Allowance
3,54,000
3HRA (Rent Paid is Rs 42,500 and in Metro City)4,25,000
4Standard Deduction (introduced in Budget 2018)40,000
5Gratuity (Not part of Salary but part of CTC – Non Taxable)40,865
6Tax Deductions

  • Section 80C Exemption – 1,50,000
  • NPS 80CCD(1B) Tax Exemption – 50,000
  • Medical Insurance (Self & Parents) – 60,000
  • Interest on Education Loan – 50,000
3,10,000
7Home Loan Exemption2,00,000
8Income after Deductions [1 – (2 + 3 + 4 + 5 + 6)]3,00,000
9Basic Tax Exemption2,50,000
10Taxable Income [8 – 9]50,000
11Income Tax [5% of 10]2,500
12Rebate u/s 87A2,500
13Tax Payable [11 – 12]0


Download:
Excel based Income Tax Calculator for FY 2018-19 [AY 2019-20]

Following salary components are tax exempt:

  • Car Maintenance
  • Meal Coupons
  • NPS (Employer Contribution)
  • EPF (Employer Contribution)
  • Mobile Phone and Internet Bill Reimbursement
  • Uniform Allowance
  • Children Education/Hostel Allowance
  • Newspaper/Journal Allowance
  • Gift voucher
  • Leave Travel Allowance
  • Transport Allowance & Medical Reimbursement is No more tax free (from FY 2018-19)

Also Read: 25 Tax Free Incomes & Investments in India

Tax Deductions:

You can claim following tax deductions.

Section 80C/80CCC/80CCD (Rs 1,50,000): Investment in EPF, ELSS, PPF, FD, NPS, NSC, Pension Plans, Life Insurance, SCSS, SSA and NPS. Also includes Home Loan Principal repayment, Tuition Fees, Stamp Duty (Best Tax Saving Investments u/s 80C)

Section 80CCD(1B) (Rs 50,000): Investment in NPS (Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)

Section 24: Interest paid on Home Loan for Self occupied homes. No Limit for Rented house.

Section 80E: Interest paid on Education Loan. No upper/lower Limit! (Tax Benefit on Education Loan (Sec 80E))

Section 80CCG: 50% of investment in RGESS approved stocks & mutual funds. Max investment limit is Rs 50,000 (RGESS – Save Taxes up to Rs 25000) (No more applicable from FY 2017-18 on wards)

Also Read: Standard Deduction would lower tax outgo for Salaried & Pensioners

Section 80D: Premium payment for medical insurance for self and parents. Also includes Rs 5,000 limit for preventive health checkup (Making Sense of Tax Benefit on Health Insurance u/s 80D)

HRA or Home Loan?

We have shown the tax deduction on both HRA and Home Loan. There are people who think that both cannot be used simultaneously. This is NOT true. You can take benefit of both HRA and Home Loan even if your home and rented place is in the same city.

Also Read: Can I claim Tax Benefit on both HRA & Home Loan?

Monthly Salary Slip:

We have seen the salary structure and how you need to pay 0 income tax even when the CTC (Cost to company) is Rs 16.7 lakhs. Now lets look at how your Monthly Salary Slip would look like.

Gross Salary – Rs 1,06,250

  • Basic Salary – 70,833
  • HRA – 35,417

Deductions – Rs 15,583

  • NPS (Employee Contribution) – 7,083
  • EPF(Employee Contribution) – 8,500
  • Income Tax – 0

Net Salary = Rs 90,667 [1,06,250 – 15,583]

Food/Gift Coupon – Rs 2,200 monthly

  • Additionally Employee would get Food Coupons worth Rs 2,200 every month (which can be used for meals, eating out in restaurants or buying grocery).
  • Also employee can be gifted vouchers worth Rs 5,000 once every year [may be on birthday]

Reimbursement (on submission of bills) – Rs 1,35,600 (Yearly)

  • Car Maintenance – 28,800
  • Phone and Internet Bill Reimbursement – 36,000
  • Uniform Allowance – 24,000
  • Children Education/Hostel Allowance – 4,800
  • Newspaper/Journal Allowance – 12,000
  • LTA (Leave Travel Allowance) – 30,000

Also Read: 13 Important Changes in Tax Rules from FY 2018-19 

As you can see the monthly payout is not high and a lot of components are reimbursement. To balance this a lot of employers pay all reimbursement monthly and deduct taxes at the end of year if the bill is not submitted.

How the Retirement Account looks?

The good thing about the above salary structure is a lot of contribution goes to long term savings of NPS & EPF. Every Month Rs 31,167 contribution goes to your retirement savings as follows:

ComponentEmployee ContributionEmployer ContributionTotal Contribution
NPS (10% of basic salary)7,0837,08314,167
EPF (12% of basic salary)8,5008,50017,000
Total15,58315,58331,167

The only drawback of the entire salary structure is that the monthly payout would be lower. In case you plan to have high monthly income, you’ll need to pay more taxes.

We hope this would help you to restructure your salary (CTC) in a way that you can balance your tax outgo and monthly payout. 

9 thoughts on “How to Pay 0 Income Tax on Rs 16 Lakh Salary? (FY 2018-19)

  1. Amit

    Tax Free Components are not part of Salary still can be claimed during ITR like Gift voucher, Newspaper/Journal Allowance?

    • The Form 16 shows what components are tax free and what not. These components can be claimed only if they are part of salary else NOT.

  2. Sanjay Ghosh says:

    If my parents in law (senior citizen) are fully dependent on me and I am paying premium for their medical policy, can I claim benefit for me against 80D

  3. Can gpf employee also claim tax deduction under 80ccd(1B),if he invests in nps

  4. i used to pay tax even i had salary of 6 lakh this article changed me thank you for such an informative article

  5. rebate is only up to

    2500 ( or) 100% of income tax whichever is lower then in case of above computation (9-10) 2500 is a tax payable. Am i right.

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