How to Pay Zero Tax on a ₹7 Lakh Salary?

Paying zero tax on a ₹7 lakh salary is possible by leveraging exemptions, deductions, and tax rebates provided under the Income Tax Act. Here's a breakdown of achieving this under the old and new tax regimes.

Income Tax Slabs for FY 2023-24

Old Tax Regime

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

New Tax Regime (2023-24 Onwards)

Income Slab	Tax Rate
Up to ₹3,00,000	Nil
₹3,00,001 – ₹6,00,000	5%
₹6,00,001 – ₹9,00,000	10%
₹9,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

Additionally, the tax rebate under Section 87A has been increased to ₹25,000 for taxable incomes up to ₹7,00,000 in the new tax regime, effectively reducing the net tax payable to zero.

Tax Calculation: Old vs New Regime

Example: Mr. Aditya’s Gross Salary: ₹7,00,000

1. Tax Liability Under the Old Regime

Deductions and Exemptions Claimed:

• HRA: ₹50,000

• Standard Deduction: ₹50,000

• Professional Tax: ₹2,400

• Section 80C (Investments): ₹1,00,000

• Section 80D (Health Insurance Premium): ₹10,000

Tax Calculation:

Components	Amount (₹)
Gross Salary (A)	₹7,00,000
Total Exemptions (B)	₹1,02,400
Total Deductions (C)	₹1,10,000
Net Taxable Income	₹4,87,600

Income Slabs	Tax Calculation	Tax (₹)
Up to ₹2,50,000	Nil	₹0
₹2,50,001 – ₹5,00,000	5% of ₹2,37,600	₹11,880
₹5,00,001 – ₹10,00,000	Nil	₹0
Total Tax Payable		₹11,880
Less: Rebate (Section 87A)	-₹11,880	₹0

Net Tax Payable: ₹0

2. Tax Liability Under the New Regime (FY 23-24)

Deductions and Exemptions Claimed:

• Standard Deduction: ₹50,000

Tax Calculation:

Components	Amount (₹)
Gross Salary (A)	₹7,00,000
Total Exemptions (B)	₹50,000
Total Deductions (C)	₹0
Net Taxable Income	₹6,50,000

Income Slabs	Tax Calculation	Tax (₹)
Up to ₹3,00,000	Nil	₹0
₹3,00,001 – ₹6,00,000	5% of ₹3,00,000	₹15,000
₹6,00,001 – ₹9,00,000	10% of ₹50,000	₹5,000
Total Tax Payable		₹20,000
Less: Rebate (Section 87A)	-₹20,000	₹0

Net Tax Payable: ₹0

Key Differences Between the Regimes

Aspect	Old Regime	New Regime (2023-24)
Deductions Allowed	HRA, 80C, 80D, etc.	Standard Deduction Only
Tax Rebate Threshold	₹5,00,000	₹7,00,000
Simplicity	Complex due to multiple deductions	Straightforward

How to Reduce Tax Liability on a ₹7 Lakh Salary?

1. Maximize Section 80C Investments

Invest ₹1,50,000 in eligible instruments such as:

• Public Provident Fund (PPF)

• Employees’ Provident Fund (EPF)

• Equity-Linked Savings Schemes (ELSS)

• National Savings Certificates (NSC)

2. Health Insurance Premium (Section 80D)

Claim up to ₹25,000 for health insurance premiums.

3. Tax-Free Allowances

• HRA: Optimize by providing rent receipts.

• LTA: Claim travel expenses for leave taken during the year.

4. Standard Deduction

₹50,000 is available under both regimes.

5. Home Loan Interest (Section 24)

Deduct up to ₹2,00,000 on home loan interest.

6. National Pension System (NPS)

Claim an additional ₹50,000 under Section 80CCD(1B) by investing in NPS.

7. Charitable Donations (Section 80G)

Deduct donations to eligible charities.

Frequently Asked Questions

1. How can I pay zero tax on ₹7 lakh salary? By utilizing exemptions and deductions in the old regime or taking advantage of the new regime’s rebate for incomes up to ₹7,00,000, you can reduce your tax liability to zero.

2. Which regime is better for a ₹7 lakh salary?

• Old Regime: Best if you have high tax-saving investments and eligible deductions.

• New Regime: Simpler and beneficial for those with minimal deductions.

3. What is the tax rebate under Section 87A? Section 87A provides a rebate of up to ₹25,000, effectively eliminating tax for incomes up to ₹7,00,000 in the new regime.

Conclusion

The new tax regime (FY 23-24) makes it easier to achieve zero tax on a ₹7 lakh salary thanks to the increased rebate limit. However, the old regime remains a good option for those with significant investments and deductions. Choose the regime that aligns with your financial habits and tax-saving goals.