What will be the taxation of your monthly salary after Budget 2018? And how much does it fall after 80C and NPS? We look at the effect on different salary levels.
There are several other deductions that you can claim on your income such as House Rent Allowance (HRA) or medical insurance premium. However, we have not considered these to keep the calculation simple. We consider only the standard deduction introduced by Budget 2018 of Rs 40,000 in lieu of travel and medical reimbursements in our base case calculation. We also only look at salaried taxpayers in this example and not self-employed individuals.
In our deduction calculation, we include the effect of Section 80C and NPS. This is Rs 150,000 and Rs 50,000 per annum respectively.
The 80C deduction is available for a number of investment options such as five-year tax-saving FDs, life insurance premiums, ELSS Funds and PPF contributions. (More in our article here.)
This enjoys two separate benefits.
- You can claim a deduction under 80C for your NPS contribution and
- An additional Rs 50,000 under Section 80CCD(1B) which is only given to NPS.
In this example, we assume that you have only used your NPS contribution for the additional Rs 50,000 deductions and used your Section 80C limit through an alternative investment such as ELSS.
|Effective tax without using 80C and NPS|
|Health and Travel Deduction||40000||40000||40000||40000|
|0 – 2.5 lakh||0%||0||0||0||0|
|2.5 – 5 lakh||5%||12500||12500||12500||12500|
|5 – 10 lakh||20%||12000||80000||100000||100000|
|Above 10 lakh||30%||0||0||60000||420000|
|After using 80C and NPS|
|Net Annual Income||360000||660000||960000||2160000|
|Post Standard Deduction||110000||410000||710000||1910000|
|Effective tax post investment||0.94%||5.09%||8.97%||19.76%|