10 Lakhs Tax-Free Income, But there is a Catch

As Interim FM CA Piyush Goyal announced the Interim Budget 2019, One WhatsApp message became viral which says, Now you can have 10 Lakh Tax-free Income. It is shared as an image, which is given below.

I don’t want to spoil the party either I have any grudges against Mr. Modi however from that day I was itching to spill the beans.

So Friends, 10 Lakh tax-free income hypothetically may be possible but practically this tax Planning is not feasible. Let me tell you why: –

  • Saving 55% of gross income: – To make your Income tax free up-to Ten Lakh you have to save 55% of Income that again of gross income and net income in Hand, that precisely means surviving on 4.5 Lakh for a year. Can’t be this easier to say than do? Further, if you have any consumer loan, Credit card loan or Fixed outflow of cash, won’t be life will become more red than pink? Next point If you are in this bracket of salary and staying in any of the metro cities or even Tier I cities saving 55% of salary will be tough. Even if someone doing it, It will be a great trade-off joy of living, with joys of saving. Means you will literally have to compromise your life and put every kind of opting out of the window.
80C Deduction 1.50 Lakh
Principle Amt. on Home Loan (Lets Say) 1.00  Lakh
Interest Amt. on Home Loan 2 .00Lakh
NPS 0.50 Lakh
Medi-claim 0.50 Lakh
Total Saving 5.50 Lakh

So save taxes, but not at the expenses of life.

  • Standard Deduction is for salary: -Deduction No 2 Standard Deduction is only applicable for salaried, so if you don’t belong to this category the calculation won’t work for you.
  • Not for Govt Servants:- The assumption say you will paying Medi-claim premium of Rs. 50K,i.e. 25K for your family and 25K for Parents or if they are Sr Citizen deduction U/s 80C can go up to 30k. However what if you are a Govt. Servant or your parents are retired Govt. servants? Then your family might not be required to get Medi-claim .so is it advisable to pay a premium just to avoid taxes? A clear and loud NO!
  • Medi-claim Expenses 50K is it Practical?:- Advising a guy to buy 50K Mediclaim who is just earning 10L gross income (Net in Hand may be further lower) don’t you feel this favors more an Insurance company than a prudent tax planning. Another point to consider if your parents are above 60 and they don’t have a previous continuing media-claim policy then getting Medi-claim for it will be very difficult, hence the presumption of 50K deduction U/s 80D for medical may not work in most of the cases.
  • Paying taxes or paying a premium, which is better?:- This is an extension to the previous point. Let me explore this for you. Suppose if you buy just 20k of Mediclaim and 5k for cash medical expenses, You will end up paying 18.2K as taxes however if you choose to buy a Mediclaimyou will end up paying 25K, towards a policy, which you don’t need & mind it Medical insurance in expenses, not an investment. So which one is better? Maybe marginally but paying taxes to Govt. is much better than to a thankless Insurance company. Practically and morally the first choice is much better. At least you can get an Appreciation certificate from Income tax and 6.8K in your pocket.

As you can see a tax planning need to be practical, It is always better to consult an expert Chartered Accountant which has practical exposure to Tax planning for individuals instead of just shooting the star. There are so many so-called tax experts who are more interested to get the investment done instead of saving taxes in legit and practical ways.

Whenever a person approaches me for tax planning the first point I discuss the present and future trade-off, Effectiveness of tax saving instruments, Availability of liquidity and so many other factors. You can’t see tax planning only from the point of saving taxes. I have seen people paying an unnecessary premium for life insurance just on the name of tax saving or tax planning. I have seen old people exposing their retirement corpus to the stock market through tax saver MF, while there should be focused on capital protection and generation returns to enjoy retirement. How is it practical to lose 50% just to save 20% or 30%.

Tax Planning is a serious matter, which needs some serious brainstorming not a wink to the vital subject.

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