how-to-save-tax-for-salary-of-15-lakhs

Whether it is negotiating offers for a new job or appraisals for an existing one, who does not like to fall in a high-income bracket of above ₹15 lakhs? It can serve as a reward for your existing performance and an incentive for the future as well. If you, too, fall in this category, you would surely know its importance. But worries about high taxation can spoil your celebratory mood.

Luckily, the government has introduced various exemptions and deductions to clarify how to save tax for salary above ₹15 lakhs. All you need to do is gain a comprehensive understanding of each of these provisions and then decide for yourself which of them suits you best.

Tax Slabs as per the Old and the New Tax Regime

You must have heard that the government introduced a new tax regime in the Union Budget 2020-21. There has further been a new development, i.e., it has been made the default regime from AY 2024-25. But you still have the option to opt out of the new regime and continue to be taxed under the old slabs.

If you are interested in learning how to save tax for salary above ₹15 lakhs, you should determine which of the regimes can lead to minimum tax liability? You can determine this by first comparing the tax slabs under both the systems.

Old Tax Regime

Different slabs are applicable for each category of taxpayer, depending upon the age. You can have a look at the following table and identify the bracket you fall into for ₹15 lakh income tax.

Note: Tax rebate u/s 87A is allowed up to ₹12,500 if the total income does not exceed ₹5,00,000.

New Tax Regime

Under the new tax regime, uniform slabs are provided irrespective of age. The table below provides a clear view of the tax slabs and rates for individual taxpayers.

Note: Tax rebate up to ₹25,000 is applicable if the total income does not exceed ₹7,00,000

What are the Ways to Save Tax on ₹15 Lakhs Salary

At first glance, opting for the new regime seems like the best way to save tax on ₹15 lakh income due to its lower rates. But there’s a catch! It is not just the slabs that influence your tax liability. There are certain exemptions and deductions that can help you reduce your tax liability as well.

Part 1- Exemptions

Do you receive allowances from your employer for specific purposes like rent, traveling, uniform, etc.? If yes, you can claim tax exemptions on them.

House Rent Allowance (HRA)

If you live in a rented house, then HRA exemption under Section 10(13A) can be claimed only under the old regime. It is based on your salary, HRA received, rent paid and city of residence.

Example: Suppose you live in a metro city and pay a rent of ₹1,80,000. If you earn a salary of ₹15,00,000 and HRA of ₹1,00,000, you can avail the lowest value among the following as exemption:

• HRA received= ₹1,00,000
• Rent paid minus 10% of salary= ₹1,80,000- ₹1,50,000= ₹30,000
• 50% of salary if living in a metro city (40% in case of non-metro city) = ₹7,50,000

Thus, you can avail an exemption of ₹30,000 to reduce your taxable income.

Leave Travel Allowance (LTA)

You can claim an exemption if your employer offers you LTA or reimburses your travel expenses. This exemption is available only for domestic travel and only if you opt for the old tax regime.

Conditions: LTA is available only for two trips in a block of four years.

Standard Deduction

Though exemptions for allowances provide tax relief, they also complicate the tax filing process. This is because you will have to back the multiple claims with valid documentation. The government recognizes this and has thus provided a fixed deduction u/s 16 in lieu of allowances like transport allowance, clothing allowance, etc.

Amount: If you opt for the old regime, you can claim ₹50,000 as a standard deduction. On the other hand, the new regime allows for ₹75,000 from FY 2024-25.

Other Allowances

Some other allowances like child education, food, uniform, mobile expenses, are also allowed as exemptions up to a limited amount as part of the old regime. For instance, you can claim a maximum ₹4,800 per child for education and hostel allowance for maximum 2 children. Similarly, ₹26,400 is allowed for meal vouchers on an annual basis.

Part 2 - Deductions

Apart from exemptions, deductions can also help you reduce your tax liability. They have been included in the tax laws to encourage investments and savings among the taxpayers. You should note here that these provisions are not applicable to the new tax regime.

Section 80C, 80CCC, 80CCD(1)

Deductions available up to ₹1.5 lakhs in tax-saving investments and expenses:

Section 80D

Deduction for health insurance premium paid by assessee.

For Self, Spouse and Children: Maximum of ₹25,000 (₹50,000, if you are a senior citizen)

Parents: Till ₹25,000 (₹50,000 for senior citizens)

Section 24(b)

Home Loan Interest: You can claim up to ₹2 lakhs of interest paid on a home loan under Section 24(b). This is for properties that are self-occupied.

Section 80E

Deduction Of Education Loan Interest: The interest paid on the loans taken for higher education of yourself, spouse or children is deductible. There is no cap on the amount.

Section 80G

Donations to Charitable Institutions: You can claim a deduction on donations made under Section 80G of the IT Act with respect to charitable contributions. The percentage will be based on whether the organization is exempt from business tax – either 50% or the full amount donated.

Section 80TTA/80TTB

Interest on Savings Accounts (80TTA): Deduction up to ₹10,000 in a financial year from savings account interest.

Interest on Deposits for Senior Citizens (80TTB): Deduction up to ₹50,000 on interest from savings and fixed deposits.

Section 80CCD(1B)

Contributions to National Pension Scheme (NPS): When you contribute to NPS, you can claim an additional deduction of ₹50,000. This is over and above the ₹1.5 lakh limit under Section 80C.

Example on Calculation of Tax under New and Old Tax Regime

Suppose you have a salary income of ₹16 lakhs, and the following exemptions are available to you based on your salary structure:

• HRA exemption of ₹1,00,000
• LTA exemption of ₹20,000
• PPF contribution of ₹ 1,50,000
• Medical insurance premium of ₹25,000
• Interest on an Educational Loan of ₹8,000

Tax calculation under the new and old tax regimes will be as follows:

Summary

You can thus save an amount of ₹40,664 if you opt for the new tax regime. This can be because of the higher standard deduction amount as well as lower tax slab rates. Does this mean that the new regime will always result in lower taxes? No! The final tax liability will depend on your particular case based on your specific list of deductions and income structure.

Final Words

See, your final goal is to save income tax for ₹15 lakhs salary or above. The first option is to opt for the old regime and avail of the increased number of deductions. You will need to carefully plan your investments and expenses to maximize the benefit of deductions. On the other hand, you can get taxed under the new regime at lower rates by foregoing the deductions. The choice is yours! That being said, you can also consider consulting a tax advisor who can help you choose the right tax-saving strategy and solve all your queries.

FAQs on How to Save Tax for Salary Above ₹15 Lakhs