Big news of income tax: ‘Zero Tax’ even on earnings of 20 lakh rupees, know how to get this exemption in the old tax system!

New Delhi:Do you know that even if your annual income is 20 lakh rupees, you may not have to pay any income tax? You may not be sure to hear this, but this is possible by taking advantage of some discounts and deductions and exemptions available in the old tax system. The Central Board of Direct Taxes (CBDT) has extended the last date for filing income tax returns (ITR) for the financial year 2025-26 (assessment year 2026-27), which means that you still have time for tax planning.[1]

Such is such possible zero tax in old tax system:

In the old tax system, income tax payers can avail many types of debals and discounts, such as sections 80C, 80D, HRA (house rent allowance), LTA (Leave Travel Allowance) and Standard Deduction. Through all these provisions, your taxable income decreases considerably.

Major cuts and their calculations:

If your total earning (CTC) is Rs 20 lakh, then let us understand how it can be made tax-free:

1. Standard deduction: The salaried persons get a direct cut of Rs 50,000.

2. Hra (house rent allowance): If you live on rent, you can get a big discount in HRA. It is calculated on the basis of your basic salary, real fare and city. If your basic salary is Rs 8 lakh (40%of CTC) and you pay an annual rent of Rs 5 lakh, then according to the rules you can claim HRA exemption up to Rs 4 lakh.

3. LTA (Leave Travel Allowance): Under some conditions, a discount of up to Rs 1.5 lakh can also be received under LTA.[1]

   • After these deductions (50,000 + 4,00,000 + 1,50,000 = 6 lakh rupees), tax from CTC of Rs 20 lakh will be about 14 lakh rupees.

4. Rebate under Section 80C: You can avail additional cuts of up to Rs 1.5 lakh annually by investing in schemes like PPF, NSC, ELSS and EPF.

5. Investment in NPS under Section 80CCD (1B): Investment of Rs 50,000 annually in the National Pension System (NPS) is tax-free under Section 80CCD (1B), which is in addition to the range of Section 80C.

6. Section 80D (Medical Insurance): Health insurance premium for self and family also gets a deduction of up to Rs 25,000 (Rs 50,000 for senior citizens).

7. Section 24 (b) (Home loan): A rebate of up to Rs 2 lakh can be received annually on the interest of home loan for the house.[2]

8. Section 80G (donation): Donations given to some special charitable institutions also get a discount of up to 50% or 100%.

9. Section 80eb (Electric Vehicle Loan): A discount of up to Rs 1.5 lakh on the interest of the loan taken for purchasing electric vehicles.

After taking full advantage of all these deductions and discounts, if your taxable income is Rs 5 lakh or less, then you will get the benefit of the entire rebate of Rs 12,500 under Section 87A of the Income Tax Act. This rebate makes your tax liability zero, so that there is no tax on income up to Rs 20 lakh.

However, it is important to understand that some changes have also been made in the new tax regime. For the financial year 2025-26, there is no tax on income up to Rs 12 lakh under the new tax system, and with a standard deduction of Rs 75,000 for salaried employees, this limit is Rs 12.75 lakh.But the old system can be more beneficial to make the income of up to 20 lakh rupees completely, if you use all the cuttings available in it effectively.

This tax savings is very important for those who want to ensure better financial future by maximizing their income.