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    How to Save Tax on Salary Above 10 Lakhs?

    Nov 07, 2023
    5 min | Views 354

    The Old and New Income Tax Regime

    Your tax-saving initiatives will abundantly depend on the tax regime you choose for calculating your taxes. Here’s a quick overview of the old and new tax regimes-

    Income Tax Slabs

    Old Tax Regime

    New Tax Regime for FY2023-24 (After Budget 2023)

    Up to ₹2.5 lakhs

    NIL

    NIL

    ₹2.5 lakhs - ₹3 lakhs

    5%

    NIL

    ₹3 lakhs - ₹5 lakhs

    5%

    5%

    ₹5 lakhs - ₹6 lakhs

    20%

    5%

    ₹6 lakhs - ₹7.5 lakhs

    20%

    10%

    ₹7.5 lakhs - ₹9 lakhs

    20%

    10%

    ₹9 lakhs - ₹10 lakhs

    20%

    15%

    ₹10 lakhs - ₹12 lakhs

    30%

    15%

    ₹12 lakhs - ₹12.5 lakhs

    30%

    20%

    ₹12.5 lakhs - ₹15 lakhs

    30%

    20%

    Above ₹15 lakhs

    30%

    30%

    Saving Tax on Salary Above ₹10 Lakhs

    The gross profit ratio (GP ratio) is a financial ratio that Compared to the older tax regime, the new regime has lower tax rates for most income slabs. However, the older regime offers a host of exemptions and deductions not available in the newer regime.

    So, the first step to saving income tax for ₹10 lakhs is to choose a regime that provides you with maximum savings. And in order to make this selection, you should know the various exemptions and deductions available under the older tax regime.

    Also Read – Income Tax Slabs

    Exemptions and Deductions Under Old Tax Regime

    For a salaried employee, these are some of the most common exemptions and deductions available under the old tax regime-

    Exemptions Under Old Tax Regime

    Salary Component

    Taxability

    Standard Deduction (section 16)

    ₹50,000

    HRA (House Rent Allowance) (section 10(13A))

    Up to a certain limit

    LTA (Leave Travel Allowance) (section 10(5))

    In 4 years, the travel expenses of 2 trips are exempt under Section 10(5) of Income Tax Act, 1961

    Mobile/Internet Reimbursement (Section 10(14))>

    Exempt if predominantly used for work purposes

    Food (Section 10(14))

    Up to ₹31,200 in a year

    Professional Tax (Section 16)

    Varies between states but is generally around ₹2,500

    Child Education Allowance (Section 10(14))

    ₹,100 per month per child for a maximum of 2 children

    Child Hostel Allowance (Section 10(14))

    ₹300 per month per child for a maximum of 2 children

    Deductions Under Old Tax Regime

    Particulars

    Taxability

    Investments (Section 80C)

    Tax deduction of up to ₹150,000 on investments like ELSS (Equity Linked Savings Scheme), PPF (Public Provident Fund), EPF (Employees’ Provident Fund), etc.

    Health Insurance (Section 80D)

    Up to ₹25,000 for policy purchased for self, spouse, and dependent children (Up to ₹50,000 if age is 60 and above);
    Up to ₹25,000 for policy purchased for parents (Up to ₹50,000 if the age of parents is 60 and above)

    Education Loan (Section 80E)

    Up to 8 years interest deduction when the loan is taken for self, spouse, or dependent children

    Charity Donation (Section 80G)

    100% or 50% of the eligible amount

    Treatment of Disabled Dependents (Section 80DD)

    Up to ₹75,000 (If dependent has 40% disability)
    Up to ₹1,25,000 (If dependent has 80% disability)

    Home Loan Payments (Section 80C and 24b)

    Principal amount of up to ₹1.5 lakhs (80C);
    Interest amount of up to ₹2 lakhs (24b)

     

    Exemptions and Deductions Under New Tax Regime

    Almost all the exemptions and deductions common among salaried taxpayers under the older regime are not available with the new regime. Some of the deductions available under the new regime are as follows-

    • Standard deduction of ₹50,000

    • Employer’s NPS contribution under Section 80CCD(2) of Income Tax Act, 1961

    • Interest on home loan on let-out property under Section 24 of Income Tax Act, 1961

    • Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)

    What Should You Choose Between Old and New Regime to Save Tax on Salary Above ₹10 Lakhs?

    Let’s try to understand the calculation of tax for ₹10 lakhs under the old and new regimes with an example-

    Mr Rajiv has an annual salary income of ₹12.5 lakhs. Here's how his income tax will be calculated under the old and new tax regimes, assuming he wants to claim some of the exemptions and deductions available under the older regime-

     

    Particulars

    Old Tax Regime

    New Tax Regime

    Annual Income

    ₹1,250,000

    ₹1,250,000

    Standard Deduction

    ₹50,000

    ₹50,000

    HRA

    ₹100,000

    -

    LTA

    ₹20,000

    -

    80C (Investments)

    ₹150,000

    -

    80D (Health Insurance)

    ₹50,000

    -

    Net Taxable Income

    ₹870,000

    ₹1,200,000

    Income Tax

    ₹79,560

    ₹119,600

     

    Disclaimer: The above illustration is Only for representation purposes. Actual calculations depend on salary, salary structure, investments, purchases, etc.

    So, in the example above, Mr Rajiv, with his annual salary of ₹12.5 lakhs, could pay lower taxes with the older tax regime. However, this might not be the case for every salaried individual having a salary of ₹10 lakhs or above. The tax liability could also be lower with the new regime in many cases. Consult with a tax advisor to select between the old and new regimes.

    Reducing Your Tax Liability on Salary of Above ₹10 Lakhs

    While the old regime has many exemptions and deductions to reduce tax liabilities, the newer regime has lower tax rates. Now that you know how to save tax on a salary of above ₹10 lakhs, use this information to select a regime that offers maximum tax benefits.

    But as income tax calculation varies on a case-to-case basis, it’d be advisable to consult to a tax advisor who can help you make the right selection.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

     

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