How to Pay Zero Tax Legally in India

Paying taxes is a civic duty, but the Indian tax system also provides several avenues for taxpayers to legally reduce their tax liability. In fact, with careful planning and strategic use of various exemptions, deductions, and investment options, it is possible to pay zero tax legally. This blog will guide you through the ways to achieve this while ensuring all actions are within the legal framework. You may want to check Understanding Real Estate Taxes: A Simple Guide for Homeowners

Understanding Tax Slabs and Basic Exemptions

In India, the Income Tax Act provides a basic exemption limit, which means that if your total income is below this limit, you do not have to pay any tax. For the financial year 2025-26, the basic exemption limit is ₹4,00,000 for individuals below 60 years of age. For senior citizens (60-79 years) and super senior citizens (above 80 years), the limits are higher at ₹5,00,000 and ₹7,00,000, respectively. This is the first step towards reducing your tax liability. Check this blog out: RBI Monetary Policy Update: Insights and Implications for the Indian Economy

Utilizing Deductions and Exemptions

1. Section 80C Deductions

Section 80C of the Income Tax Act allows deductions up to ₹1,50,000 for investments and expenses in specified instruments. These include:

• Public Provident Fund (PPF): A long-term investment with a maturity period of 15 years, offering a fixed interest rate (currently around 7.1%).
• National Savings Certificates (NSC): Available in two types, NSC-VIII and NSC-IX, with a tenure of 5 and 10 years, respectively.
• Tax-saving Fixed Deposits: With a minimum tenure of 5 years, these deposits offer a slightly higher interest rate compared to regular FDs.
• Equity-Linked Savings Schemes (ELSS): These are mutual funds with a lock-in period of 3 years, offering the potential for higher returns. Besides, read How to Build an Investment Portfolio from Scratch

By investing in these instruments, you can reduce your taxable income by up to ₹1,50,000.

2. Section 80D Deductions

Section 80D provides deductions for health insurance premiums paid for self, spouse, dependent children, and parents. The maximum deduction is ₹25,000 for self and family, and an additional ₹25,000 for parents. This can further reduce your taxable income.

3. Section 80TTA and 80TTB

Section 80TTA allows a deduction of ₹10,000 on interest earned from savings bank accounts for individuals below 60 years. For senior citizens, Section 80TTB allows a deduction of ₹50,000 on interest earned from savings bank accounts.

4. Section 24 Deductions

If you have a home loan, the interest paid on the loan is deductible under Section 24, up to ₹3,50,000 per financial year. This can significantly reduce your taxable income, especially if you have a substantial home loan.

Strategic Investment Planning

1. Invest in Tax-Free Bonds

Tax-free bonds issued by public sector units (PSUs) like NHAI and REC offer interest income that is exempt from tax. These bonds have a tenure of 10-15 years and provide a steady income stream without adding to your taxable income. Read Stocks vs. Mutual Funds: Which One Is Right for You?

2. Utilize the Rajiv Gandhi Equity Savings Scheme (RGESS)

RGESS is designed to encourage new retail investors to invest in equities. If you are a new investor and your taxable income is below ₹12,00,000, you can claim a deduction of 50% of the amount invested, up to ₹50,000. This can be a great way to reduce your taxable income while investing in equities.

3. Invest in Long-Term Capital Gains (LTCG)

Investments in equity shares held for more than one year are exempt from tax under Section 10(38) if the gains do not exceed ₹1,00,000 in a financial year. By investing in equities for the long term, you can benefit from tax-free capital gains.

New Income Tax Slabs and Zero Tax Liability

As of April 1, 2025, the income tax slabs have been revised. The new slabs are as follows:

Income Range (In Rs)	Tax Rate (%)
0-4,00,000	0
4,00,001-8,00,000	5
8,00,001-12,00,000	10
12,00,001-16,00,000	15
16,00,001-20,00,000	20
20,00,001-24,00,000	25
Above 24,00,000	30

With the revised tax structure, individuals earning up to ₹12,00,000 will have no tax liability due to the increased rebate of ₹60,000 under Section 87A. For salaried individuals, the tax liability will be zero for incomes up to ₹12,75,000, due to the ₹75,000 standard deduction. You might be interested in The Psychology of Spending for Urban Indian Professionals

Conclusion

Paying zero tax legally in India is achievable through careful planning and strategic use of various tax-saving instruments and provisions. By maximizing your investments in tax-saving schemes, utilizing deductions and exemptions, and making informed investment decisions, you can significantly reduce your tax liability. Remember to consult a tax advisor or financial planner to ensure you are making the most of these opportunities while staying compliant with tax laws. For those in pursuit of their dream home, investment opportunities, or a sanctuary to call their own, Jugyah provides top housing solutions with its intelligent technology.

Frequently Asked Questions

Q1. Can I claim deductions for both PPF and ELSS under Section 80C?

Yes, you can claim deductions for both PPF and ELSS under Section 80C. The total deduction under Section 80C is capped at ₹1,50,000, and you can split this amount between different investment instruments.

Q2. Are there any age restrictions for claiming deductions under Section 80D?

No, there are no age restrictions for claiming deductions under Section 80D. However, the maximum deduction limit varies based on whether you are claiming for self/family or parents.

Q3. Can I claim deductions for interest earned from both savings and fixed deposits under Section 80TTA?

No, Section 80TTA applies only to interest earned from savings bank accounts. Interest earned from fixed deposits is not eligible for deduction under this section.

Q4. How many tax-free bonds can I invest in?

There is no limit on the number of tax-free bonds you can invest in. However, the bonds are usually issued periodically, and you need to invest during the issue period.

Q5. Can I claim deductions for both Section 80TTA and 80TTB?

No, you can claim deductions under either Section 80TTA or 80TTB, depending on your age. If you are below 60 years, you can claim under Section 80TTA, and if you are a senior citizen, you can claim under Section 80TTB.