Indian taxpayers are required to pay income tax according to the tax bracket they fall under. As a result, one’s tax liabilities increase with a rise in income. Fortunately, there are several ways to lower your tax obligations as per provisions in the Income Tax laws. If you draw a salary above Rs.10 lakh, tax-saving investments could be the most effective way to reduce your tax burden. Hence, you can consider modifying your tax planning so as to pay zero/nil income tax for Rs.10 lakh earnings.
Differences in the Income Tax Slabs for Individuals: Old vs New Income Tax Regime
To begin with, taxpayers need to understand the old and new tax structures to know which one they should opt for. A comparison of the old and new income tax slab rates is tabulated below:
| Income Per Annum | Old Tax Regime | New Tax Regime (2022-23) |
|---|---|---|
| Up to Rs.2.5 lakh | Nil | Nil |
| Rs.2.5 lakh – Rs.5 lakh | 5% (full rebate) | 5% |
| Rs.5 lakh – Rs.7.5 lakh | 20% + Rs.12,500 | 10% + Rs.12,500 |
| Rs.7.5 lakh – Rs.10 lakh | 20% + Rs.12,500 | 15% + Rs.37,500 |
| Rs.10 lakh – Rs.12.5 lakh | 30% + Rs.1,12,500 | 20% + Rs.75,000 |
| Rs.12.5 lakh – Rs.15 lakh | 30% + Rs.1,12,500 | 25% + Rs.1,12,500 |
| Above Rs.15 lakh | 30% + Rs.1,12,500 | 30% + Rs.1,87,500 |
Further, in the budget 2023, the Finance Minister introduced revised income tax slabs, raising the basic income exemption limit to Rs.3 lakh from Rs.2.5 lakh in the new tax regime. Additionally, the government has increased the rebate eligibility ceiling via Section 87A in the new tax regime, from Rs.5 lakh to Rs.7 lakh taxable income. As a result, individuals choosing the new tax regime in FY 2023-24 will not have to pay any taxes, given that their taxable income does not surpass Rs.7 lakh.
| Income tax slabs (In Rs) | New Tax Regime 2023-24 |
|---|---|
| Between 0 and 3,00,000 | 0 |
| Between 3,00,001 and 6,00,000 | 5% |
| Between 6,00,001 and 9,00,000 | 10% |
| Between 9,00,001 and 12,00,000 | 15% |
| Between 12,00,001 and 15,00,000 | 20% |
| Above 15,00,001 | 30% |
It must also be noted that most of the deductions apply to the old tax regime. Under the new tax regime, you may have to forego the deductions.
How To Save Tax For Salary Above Rs.10 Lakh
If your salary is above Rs.10 lakhs and you want to save taxes in the old tax regime, here are some ways to do so:
Understand Your Salary Structure
Your salary comprises various tax-exempt allowances. So, the remaining portion of the salary is your taxable income.
Thus,
Salary minus exemptions = Taxable salary income
Taxable salary income minus deductions = Net taxable income
Therefore, taxpayers can maximise their tax savings through exemptions and deductions.
Salary Exemptions Permitted Under Income Tax
Your salary structure contains multiple elements that may qualify for tax exemptions as shown in the table here:
| Constituents of Salary | Taxation Impact |
|---|---|
| Basic pay | Fully taxable |
| Dearness allowance | Fully taxable |
| House Rent Allowance (HRA) | Exempt to a limit |
| Leave Travel Allowance (LTA) | Travel ticket costs exempt for 2 trips in 4 years under Section 10 (5) |
| Reimbursement of mobile/internet bills | Exemption allowed if used for office purposes; bills to be submitted as proof for claiming exemption |
| Children’s education and hostel allowance | Rs. 4,800 per child; maximum 2 children |
| Food allowance | Rs. 50 per meal; 2 meals a day |
| Standard deduction | Rs. 50,000 given to everyone without restrictions |
| Professional tax | Rs. 2,400; varies with each state |
Salary Deduction Allowed Under Income Tax
In case of Rs. 10 lakh income and above, you can optimise tax savings through expenditures to enhance your deductions as follows:
| Expenses | Tax Considerations |
|---|---|
| Policy premium of your health insurance under Section 80 D | Rs. 25,000 deductions for self, spouse and dependent children; Rs. 25,000 for parents; Rs. 50,000 for senior citizen parents aged 60 years and above |
| Education loan under Section 80 E | Interest deduction for 8 years from year of loan repayment for higher studies of self, spouse, dependent children or student over whom you have legal guardianship |
| Charity donations under Section 80 G | 50% to 100% of the eligible sum |
| Investments made in tax savings instruments under Section 80 C | Tax benefit of Rs. 1.5 lakh each year through investments such as:
|
| Treatment costs for disabled dependents under Section 80 DD | In case you bear medical expenses for disabled dependents, expect tax relief as follows: For 40% disability: Rs. 75,000; 80% disability: Rs. 1,25,000 |
| Deductions for home loan repayments | Up to Rs. 1.5 lakh u/s 80 C on the principal amount; up to Rs. 2 lakh u/s 24 (b) on the interest component |
| Life insurance policy maturity amount | Maturity sum is tax exempt if the assured amount is 20% for policies issued before April 2012; 10% for policies issued after April 2012; 15% for policies issued after April 2013 for persons with disability or disease |
How to Pay Zero Tax on Rs. 10 Lakh Income
Let us use an example here: A person receives a salary of Rs. 10 lakh and incurs Rs. 20,000 as interest income. S/he can save tax on Rs. 10 lakh income and arrive at zero income tax through deductions and exemptions such as:
How Much Tax Should I Pay for Rs.10 Lakh?
| Income | Amount |
|---|---|
| Income from salary | Rs. 10 lakh |
| Interest income | Rs. 20,000 |
| 1. Total taxable income | Rs. 10,20,000 |
| Deductions | |
| Standard deduction | Rs. 50,000 |
| Investments under Section 80 C | Rs. 1.5 lakh |
| Contribution to NPS under Section 80 CCD (1b) | Rs. 50,000 |
| Home loan interest or HRA | Rs. 2 lakh |
| Medical insurance for family | Rs. 25,000 |
| Medical insurance for senior citizen parents | Rs. 50,000 |
| 2. Total deduction claimed | Rs. 5,25,000 |
| Net taxable income = total taxable income – total deduction claimed | Rs. 10,20,000 – Rs. 5,25,000 = Rs.4,95,000 |
| Tax payable | Nil |
- First, there is a standard deduction of Rs. 50,000 for salaried individuals which will decrease the taxable income to Rs. 9.7 lakh.
- Tax-saving investments under Section 80 C can further lower your taxable income up to Rs. 1.5 lakh or more depending on your financial portfolio. One may reduce another Rs. 50,000 by investing in National Pension Service (NPS) under Section 80 CCD (1b). Together these deductions will decrease the taxable figure to Rs. 7.7 lakh.
- If you avail of a home loan, the home loan tax benefits take away a huge portion of the taxable income. You may also claim exemptions for HRA if you live on rent. When you avail of either benefit, you can bring down your taxable income by Rs. 2 lakh, taking the net taxable income to Rs. 5.7 lakh.
- Individuals 60 years and lower can claim deductions up to Rs. 25,000 towards health insurance premium. They may further avail of deductions up to Rs. 50,000 as health insurance payments for senior citizen parents. If one claims both, the taxable income falls to Rs. 4.95 lakh.
A taxable income below Rs. 5 lakh makes you eligible for complete tax rebate under Section 87 A. This essentially implies no/nil tax is payable on a tax slab for Rs.10 lakh and above salary scale.
