How to Save Tax for Salary Above 50 Lakhs?

There is a lot of information available that can practically spoon-feed you how to save tax for salary above ₹50 lakh, but you will need more knowledge. Your journey towards a financially secure future will only start when you pay attention to the taxation system. Your next step could be to learn about the various deductions and exemptions you can avail yourself of to save taxes. But first, you must ensure which regime works best for you.

Tax Slabs as per the Old and the New Tax Regime

In India, the type of income tax slab differs depending on whether you opt for the old tax regime with deductions and exemptions or the new tax regime with lower tax rates but fewer deductions. Here’s a detailed look at both:

Tax rates for individuals (resident or non-resident) less than 60 years of age at any time during the previous year are as under:

Tax rates for individuals (resident or non-resident) of 60 years or more but less than 80 years of age are as under:

What are the Ways to Save Tax on ₹50 lakhs Salary?

Saving taxes is one of the processes you can use to save your hard-earned money. It becomes better when you know how to leverage various tax-saving methods. While calculating income tax on ₹50 lakhs, you need to plan well and take the right steps to easily bring your tax burden to a minimum level.

Speaking of tax saving methods, you can use deductions, exemptions, and investments to optimize tax savings. Read further to understand them in detail and get your answer to “how to save tax for salary above ₹50 lakh”:

Part 1- Exemptions

Some parts of your income can be exempted to reduce income tax on ₹50 lakhs. The most common exemptions that you can leverage are:

House Rent Allowance (HRA): If you live in a rented house, you can claim an exemption on HRA received. The amount exempted depends on your salary, rent paid, and the city of residence.

LTA (Leave Travel Allowance): You can get an exemption on the travel cost incurred on a holiday in India. This is also allowed for your family and can be claimed twice within four years.

Section 10(14)

Special Allowances: Some allowances, such as conveyance allowance, uniform allowance, or children’s education allowance, are exempt from tax and are subject to certain limits and conditions.

Section 10(38)

Long-Term Capital Gains: Gains arising from the sale of equity shares or units of an equity-oriented mutual fund (where such transaction is chargeable to securities transaction tax), held for a minimum period of 12 months from the date of acquisition, will be exempt from tax.

Section 10(10D)

Life Insurance: Your life insurance policy’s maturity amount is exempted from taxes if the premium paid does not surpass 10% of the sum promised.

Section 10(15)

Interest Income: You are not required to pay taxes on interest received on some government-sponsored savings programs, such as tax-free bonds or designated savings certificates.

Part 2- Deductions

Deductions refer to specific expenses or investments that you can claim to reduce your taxable income. Below are a few key deductions for a salary of ₹50 lakhs.

Section 80C

Investments: Investing in tax saving instruments like the Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), and life insurance premiums can offer you deductions up to ₹1.5 lakh.

Section 80D

Health Insurance: Deduct premiums paid towards health insurance up to ₹25,000 for yourself, your spouse, and your children or ₹50,000 if you are 60 or older. An additional ₹25,000 or ₹50,000 (if your parents are also 60 years old or more) can be claimed for your parents’ health insurance.

Section 24(b)

Home Loan Interest: A deduction of up to ₹2 lakh on the interest paid on a home loan taken for residential purposes is another way of saving tax.

Section 80E

Education Loan: Deduct the interest paid for loans taken for higher education with no upper limit.

Section 80CCD(2)

NPS Contribution: Claim an additional deduction of up to ₹50,000 for contributions to the National Pension System (80CCD 2 deduction).

Section 80TTA/80TTB

Savings Interest: Claim a deduction of up to ₹10,000 (Section 80TTA) or Section 80 TTB for senior citizens of up to ₹50,000 on interest earned from savings, fixed, or recurring deposits.

Section 10(14)

Allowances: You can claim exemptions on certain allowances like house rent, travel, or meal vouchers if they form part of your salary structure.

Example on Calculation of Tax under New and Old Tax Regime

New and old tax regimes treat income tax on ₹50 lakhs differently. Let’s understand how it works with this example:

Old Tax Regime

Income from salary: ₹50,00,000

Exemptions & Deductions

• Exempt Allowances (HRA): ₹2,00,000
• Standard Deductions: ₹50,000
• Investment in Section 80C Investments: ₹1,50,000
• Medical Insurance Exemptions (Section 80D): ₹25,000
• Home Loan Interest: 2,00,000

Taxable Income: ₹43,75,000

Tax due:

Income Tax: ₹11,70,000

Health and Education Cess (4%): ₹45,000

New Tax Regime

Income from salary: ₹50,00,000

Exemptions & Deductions

• Exempt Allowances: ₹0
• Standard Deductions: ₹75,000
• Other Deductions under Section 80C, 80D, 24(b): ₹0

Taxable Income: ₹49,25,000

Tax due:

Income Tax ₹11,67,500

Health and Education Cess ₹46,700

Final Words

The ideal tax-saving plan for individuals earning a salary above ₹50 lakhs largely depends on your investment choices, financial goals, and the balance between exemptions and deductions. If you benefit from significant deductions, the old tax regime might be more favorable. On the other hand, if you prefer a simpler approach without juggling various tax-saving options, the new tax regime offers greater convenience.

All you need to do is follow some easy steps that can help you secure your financial future. Understand the fundamentals and create a solid strategy to effectively reduce your tax burden and make the most of your income!

FAQs on How to Save Tax for Salary Above ₹50 Lakhs