Budget 2018, tax deduction, salaried classWhat 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.

Section 80C

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.)

NPS

This enjoys two separate benefits.

  1. You can claim a deduction under 80C for your NPS contribution and
  2. 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
Monthly Salary Rs.50,000 Rs.75,000 Rs.1,00,000 Rs.2,00,000
Health and Travel Deduction 40000 40000 40000 40000
Bands Rate Tax
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
Tax 24500 92500 172500 532500
Cess 735 2775 5175 15975
Effective tax 4.21% 10.59% 14.81% 22.85%
After using 80C and NPS
80C Deduction 150000 150000 150000 150000
NPS Deduction 50000 50000 50000 50000
Net Annual Income 360000 660000 960000 2160000
Standard Deduction 250000 250000 250000 250000
Post Standard Deduction 110000 410000 710000 1910000
Tax 5500 44500 104500 460500
Cess 165 1335 3135 13815
Effective tax post investment 0.94% 5.09% 8.97% 19.76%

 

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.