How to Save Tax for Salary Above 10 Lakhs

Earning a salary of over ₹10 lakhs is a significant milestone, but it also means you might be dealing with higher tax liabilities. The good news? There are plenty of smart strategies to help you save on taxes and make the most of your hard-earned income. Whether you’re investing in tax-saving instruments, planning your expenses wisely, or taking advantage of deductions and exemptions, there are multiple ways to reduce your tax burden.

Tax Slabs as per the Old and the New Tax Regime

In India, taxpayers have the option to choose between the old tax regime and the new tax regime while filing their income tax on ₹10 lakh returns. Both regimes have different tax slabs and offer distinct benefits, making it essential for taxpayers to understand how each regime works to optimize their tax liabilities.

Old Tax Regime

New Tax Regime

What are the Ways to Save Tax on 10 Lakhs Salary

Saving tax on a ₹10 lakh salary requires careful planning and a strategic approach. By leveraging the various sections of the Income Tax Act, such as 80C, 80D, and others, you can significantly reduce your taxable income and increase your savings. However, it also places you in a higher tax bracket, making tax planning crucial to minimize liability.

Part 1- Exemptions

Exemptions are specific amounts that you can deduct from your taxable income, reducing the portion of your salary that is subject to tax. Below are some key exemptions you should consider:

House Rent Allowance (HRA)

If your salary includes House Rent Allowance (HRA) and you live in a rented house, you can claim an exemption on the HRA. The exempt amount is the least of the following:

• Actual HRA received from your employer.
• 50% of your basic salary if you live in a metro city or 40% if you live in a non-metro city.
• Rent paid minus 10% of your basic salary.

By claiming this exemption, you can significantly lower your taxable income, especially if you live in a high-rent area.

Leave Travel Allowance (LTA)

Leave Travel Allowance (LTA) is another common exemption that employers provide. You can claim an exemption on travel expenses incurred during a vacation within India. The exemption can be claimed for two journeys in a block of four years. However, it is worth noting that LTA covers only the cost of travel, not accommodation or food.

Standard Deduction

The standard deduction is available to all salaried individuals, and it allows you to deduct a flat amount of ₹50,000 from your salary. This deduction is straightforward and does not require you to submit any proofs or documentation, making it an easy way to reduce your taxable income.

Transport Allowance for Specially-Abled Individuals

For differently-abled individuals, there is an exemption available for transport allowance. They can claim an exemption of ₹3,200 per month under Section 10(14). This exemption is provided to help cover the additional transportation costs that may arise due to their condition.

Children’s Education Allowance

If you have children, you can claim an exemption for their education under the Children’s Education Allowance. The exemption is ₹100 per month per child for a maximum of two children. Additionally, if your child stays in a hostel, you can claim a hostel expenditure allowance of ₹300 per month per child.

Part 2- Deductions

Deductions are specific expenses or investments that you can subtract from your gross income, further reducing your taxable income. Here are some key deductions you should be aware of:

Section 80C Deductions

Section 80C offers a wide range of investment and expense options that allow you to claim a deduction of up to ₹1.5 lakhs from your taxable income.

Popular 80C Options:

• Public Provident Fund (PPF): A long-term savings scheme with a lock-in period of 15 years.
• Employee Provident Fund (EPF): Automatically deducted from your salary, contributing towards your retirement.
• National Savings Certificate (NSC): A fixed-income investment with a 5-year tenure.
• Equity-Linked Savings Scheme (ELSS): Mutual funds with a lock-in period of 3 years.
• Life Insurance Premiums: Premiums paid for life insurance policies for yourself, your spouse, or your children.
• Home Loan Principal Repayment: The principal component of home loan EMIs is eligible for a deduction.

Section 80D - Health Insurance Premiums

Under Section 80D, you can claim a deduction for health insurance premiums paid for yourself, your family, and your parents.

Deduction Limits:

• ₹25,000 for premiums paid for self, spouse, and children.
• ₹25,000 for premiums paid for parents (₹50,000 if parents are senior citizens).
• An additional ₹5,000 for preventive health check-ups.

Section 24 - Home Loan Interest

If you have a home loan, the interest paid on the loan is deductible under Section 24(b).

Deduction Limits:

• Up to ₹2 lakhs per year for a self-occupied property.
• For rented properties, the full interest amount can be deducted, though losses from house property are capped at ₹2 lakhs.
• This deduction can significantly reduce your taxable income, especially if you have a large home loan.

Section 80E - Education Loan Interest

If you’ve taken an education loan, the interest paid on the loan is fully deductible under Section 80E.

Deduction Details:

• The deduction is available for up to 8 years, starting from the year in which you begin repaying the loan.
• There is no upper limit on the amount that can be claimed.
• This deduction is particularly beneficial for those who have pursued higher education and are in the process of repaying their loans.

Section 80CCD(1B) - National Pension Scheme (NPS)

Contributions to the National Pension Scheme (NPS) provide an additional deduction of ₹50,000 under Section 80CCD(1B), over and above the ₹1.5 lakh limit under Section 80C.

Benefits:

• Encourages retirement savings.
• Reduces taxable income by an additional ₹50,000.
• NPS is a great way to save for your retirement while also enjoying tax benefits.

Example on Calculation of Tax under New and Old Tax Regime

When it comes to filing your ₹10 lakh income tax returns, you now have the option to choose between two tax regimes: the old tax regime and the new tax regime. Each has its own set of benefits and drawbacks, and the choice depends on your income structure and tax-saving investments.

Scenario:

Annual Gross Salary: ₹10,00,000

Deductions and Exemptions Available (Old Regime):

Section 80C (Investments): ₹1,50,000

Section 80D (Health Insurance Premium): ₹25,000

Standard Deduction: ₹50,000

House Rent Allowance (HRA): ₹1,00,000

1. Tax Calculation under the Old Tax Regime

The old tax regime allows for various deductions and exemptions, which can significantly reduce your taxable income.

Step 1: Calculate Gross Taxable Income

Gross Salary: ₹10,00,000

Less: Standard Deduction: ₹50,000

Gross Taxable Income: ₹9,50,000

Step 2: Apply Deductions under Sections 80C and 80D

Less: Section 80C Deduction: ₹1,50,000

Less: Section 80D Deduction: ₹25,000

Less: HRA Exemption: ₹1,00,000

Total Deductions: ₹3,25,000

Step 3: Calculate Net Taxable Income

Net Taxable Income: ₹9,50,000 - ₹3,25,000 = ₹6,25,000

Step 4: Apply Tax Slabs (Old Regime)

Up to ₹2.5 lakhs: No tax

₹2.5 lakhs - ₹5 lakhs: 5% of ₹2.5 lakhs = ₹12,500

₹5 lakhs - ₹6.25 lakhs: 20% of ₹1.25 lakhs = ₹25,000

Total Tax Payable:

Tax: ₹12,500 + ₹25,000 = ₹37,500

Less: Rebate under Section 87A: ₹12,500 (as income is under ₹5 lakhs post deductions)

Net Tax Payable: ₹25,000

Add: Cess @ 4%: ₹1,000

Total Tax Payable: ₹26,000

2. Tax Calculation under the New Tax Regime

The new tax regime offers lower tax rates but does not allow most deductions and exemptions, including the standard deduction, Section 80C, and 80D benefits.

Step 1: Calculate Gross Taxable Income

Gross Salary: ₹10,00,000

No Deductions or Exemptions (except for employer’s contribution to NPS, if applicable)

Net Taxable Income: ₹10,00,000

Step 2: Apply Tax Slabs (New Regime)

Up to ₹2.5 lakhs: No tax

₹2.5 lakhs - ₹5 lakhs: 5% of ₹2.5 lakhs = ₹12,500

₹5 lakhs - ₹7.5 lakhs: 10% of ₹2.5 lakhs = ₹25,000

₹7.5 lakhs - ₹10 lakhs: 15% of ₹2.5 lakhs = ₹37,500

Total Tax Payable:

Tax: ₹12,500 + ₹25,000 + ₹37,500 = ₹75,000

Add: Cess @ 4%: ₹3,000

Total Tax Payable: ₹78,000

3. Comparing the Two Regimes

Old Tax Regime: Total Tax Payable = ₹26,000

New Tax Regime: Total Tax Payable = ₹78,000

As you can see, the old tax regime results in a lower tax liability due to the various deductions and exemptions applied.

Final Words

Effective tax planning isn’t just about saving money today; it’s about making smart financial decisions that will benefit you in the long run. By combining different strategies, you can significantly reduce your tax liability while securing your financial future. So, take some time to review your options, maybe even consult a financial advisor, and get started on your tax-saving journey. Take the right step and save tax on 10 lakh income today. After all, the more you save, the more you have to invest in your dreams!

FAQs on How to Save Tax for Salary Above 10 Lakhs