How to Save Tax for Salary Above 12 Lakhs?

As soon as you start earning, saving money becomes extremely important. But has anyone ever told you that one of the best ways to do so is by reducing the taxes you pay?

But how do you do that if your salary is ₹12 lakhs or more? You might be worried about how much of it goes into taxes, but it is not as complicated as it seems. You only need to know the rules and use smart financial planning. You can easily do that by educating yourself about the tax system and taking advantage of exemptions and deductions.

Tax Slabs as per the Old and the New Tax Regime

Before you explore how to save tax for salary above ₹12 lakhs, it is important to understand which tax slab your current salary falls. In India, tax rates differ based on your salary and the tax regime you choose. The old regime offers exemptions and deductions, while the new regime is simpler and has lower tax rates but fewer deductions.

Old Tax Regime

The old tax regime is flexible and follows a structured slab-based system. There are some exemptions and deductions that you can claim under this regime to reduce your ₹12 lakh income tax. Here are the tax slabs for the old regime:

New Tax Regime

With the new tax regime, tax slabs have changed. It has a simple tax structure and is beneficial if you have minimal deductions or exemptions to claim. Here are the tax slabs for the new regime:

What are the Ways to Save Tax on ₹12 Lakhs Salary?

Learning about the tax slabs and under which slab your salary falls is just the first step toward managing your taxes. If you want to know how to save tax for salary above ₹12 lakhs using exemptions and deductions, the next step is to know what these are.

Part 1- Exemptions

This is the best part if you want to save tax on your salary. Tax exemptions are the specific amount of your income that you do not have to pay tax on. This basically means that they “exempt” a part of your income from being taxed. This ultimately allows you to reduce your taxable income. The government has provided these to encourage timely tax filing from citizens. Some of the exemptions to avail of if you earn a salary above ₹12 lakhs are:

House Rent Allowance (HRA)

You can claim an HRA exemption if you live in a rented house and get HRA as part of your salary. The amount of exemption will depend on your salary, the HRA you received, your rent, and the city you live in. The best part is that by calculating the exemption, you can save a good tax amount if you live in a high-rent area.

Leave Travel Allowance (LTA)

Did you know you can claim an exemption even on travel expenses within India? Your employer covers these expenses under the LTA of your salary. While this is highly advantageous, know that it does not cover your daily commute or international travel costs. Also, LTA can only be claimed under the old regime and requires proof of travel, such as flight or train tickets.

Part 2- Deductions

Tax deductions are amounts subtracted from your total income to arrive at your taxable income. They are particularly beneficial under the old regime. So, if you wish to save tax on ₹12 lakh income, you should know these deductions.

Section 80C Deductions

You can claim up to ₹1.5 lakh in deductions by investing in eligible schemes like:

• Public Provident Fund (PPF)
• Employee Provident Fund (EPF)
• Life Insurance Premiums
• Equity Linked Savings Scheme (ELSS)
• Tax Saving Fixed Deposits
• National Savings Certificate (NSC)

Section 80D

As per this section, you can get a deduction for health insurance premiums. You can claim up to ₹25,000 for yourself and an additional ₹25,000 if you have taken a health policy for your parents. The deduction can increase to ₹50,000 if your parents are elderly.

Section 80E

If you borrowed money to pay for your education, the interest you pay back on that loan can help you save on taxes because of Section 80E. Isn’t this amazing? Add to that, there is no maximum limit on the amount you can claim up to 8 years or till you pay your loan interest. So, if you have a big education loan, you can reduce your taxable income by a lot, which means you will pay less in taxes.

Section 24(b)

In case you have taken a loan for your home, you can save money on taxes by getting a deduction of up to ₹2 lakh on the interest you pay for the loan. This helps you pay less tax, especially if your monthly loan payments are high.

By combining all these deductions, you can lower your taxable income and, ultimately, reduce the income tax for ₹12 lakhs per annum.

Example on Calculation of Tax under New and Old Tax Regime

Let us take a practical example to help you understand how the old and new tax regimes affect income tax for ₹12 lakhs per annum.

Assumption: Suppose you are eligible for an HRA exemption of ₹1,20,000. You also invest ₹1,50,000 under Section 80C and pay ₹30,000 as a health insurance premium for yourself and your parents under Section 80D.

Old Regime

Under the old tax regime, your tax liability would be around ₹85,800 (after considering the standard deduction).

New Regime

As per the new tax regime, your tax liability would be ₹71,500 (after considering the standard deduction).

Final Words

So, if you want to learn how to save tax for salary above ₹12 lakhs, you first need to compare both the old and new tax regimes. It is like choosing between two different ways to pay your taxes. If you have things like HRA exemption (for house rent allowance) or deductions like Section 80C (for investments like life insurance, PPF, or ELSS), the old tax regime may help you save more money. But if you do not want to worry about many rules and just want a more straightforward way to pay taxes, the new tax regime could be better for you.

Whichever option you go for, smart tax-saving investments can help you save on taxes and also protect you financially. By using the right exemptions and deductions, you can lower the tax you must pay on your ₹12 lakh salary and make your taxes more manageable!

FAQs on How to Save Tax for Salary Above ₹12 Lakhs