How to Save Tax on a Salary of Rs.10 Lakh_Banner


Zero tax on income of Rs. 10 lakh_WC

Taxpaying citizens need to file their income tax returns annually. There are two ways to go about it: they can continue with the old tax structure and claim a plethora of tax-saving benefits and deductions, or they can choose the new tax regime that accords lower tax rates while foregoing about 70 tax deductions and exemptions.

The income tax laws permit individuals to choose either of the two tax schemes every financial year. This means that you can alternate between both regimes if you so wish. On the practical side, however, it is advisable to compare the income tax payable under both structures for assessing which has a lower outgo.

Income Tax Slabs Under Old and New Tax Regimes_WC

Income Tax Slabs Under Old and New Tax Regimes

Both tax regimes hold distinct merits with some variations in the tax slabs. Given below is an easy comparison of the two:

Annual Salary Old Tax Regime New Tax Regime
Up to Rs.2.5 lakh Nil Nil
Rs.2.5 lakh to Rs.5 lakh 5% (full rebate) 5%
Rs.5 lakh to Rs.7.5 lakh 20% + Rs.12,500 10% + Rs.12,500
Rs.7.5 lakh to Rs.10 lakh 20% + Rs.12,500 15% + Rs.37,500
Rs.10 lakh to Rs.12.5 lakh 30% + Rs.1,12,500 20% + Rs.75,000
Rs.12.5 lakh to 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

The latest budget of 2023 brings changes in the income tax slabs, which have been reduced to five slabs while the tax exemption limit has been raised to Rs. 3 lakh. These will be applicable for income earned from FY 2023-24.

Top Ways to Save Taxes on Rs.10 Lakh Salary Annually_WC

Top Ways to Save Taxes on Rs.10 Lakh Salary Annually

Regardless of tax slabs, every tax-paying citizen should, first and foremost, know the different components of their income.

Understanding Your Salary Structure

Your gross salary includes various tax-exempt allowances. Once these exemptions are made by the employer or company, the remaining salary or net salary is your taxable income.

Salary – Exemptions = Taxable salary income
Taxable salary income – Deductions = Net taxable income

The old tax regime bestows ample opportunities to optimise tax savings through a wide array of exemptions and deductions in the Income Tax Act of 1961. They enable you to reduce the tax liability subject to meeting stipulated eligibility conditions.

The tax calculation procedure comprises two basic steps as elucidated below:

Step 1- Exemption Cuts

You can claim certain exemptions from your salary such as house rent allowance, leave travel allowance and a standard deduction of Rs.50,000. Other income like interest accrued through savings accounts, fixed deposits and dividends are also considered while computing taxes.

Here is an approximate calculation for gross taxable income under the old tax regime:

Exemptions on Gross Salary Amount Per Annum
Gross salary Rs.10 lakh
Minus: House rent allowance Rs.2.4 lakh
Minus: Standard deduction Rs.50,000
Net salary Rs.7,10,000
Add: Savings account interest Rs.7,000
Add: Fixed deposit interest Rs.8,000
Add: Equity share dividends Rs.5,000
Gross taxable income Rs.7,30,000

Step 2 - Claim the Necessary Deductions

Eligible taxpayers can secure multiple concessions to bring down the payable taxes. Some of these commonly availed tax deductions are:

Section 24 and Section 80C Deductions on Home Loans

Housing loan borrowers can avail of home loan tax benefits to lower their taxable income. Section 80C permits tax deductions on Home Loan principal amount up to Rs.1.5 lakh; while Section 24 b allows relief up to Rs.2 lakh on the intereshowt repayments. Housing loans availed for investing in let-out properties can fetch exemptions under ‘Income from house property’.

Prospective home buyers who wish to secure housing finance must first remember to check and compare essential loan specifics such as home loan eligibility so that they not only receive favourable interest rates but can further maximise tax relief ensuring affordable credit.

Section 80C Deductions on Investments

Several investment instruments offer tax rebates which make it easier to utilise the Rs.1.5 lakh limit accorded under Section 80C such as:

  • Public Provident Fund
  • Employees’ Provident Fund
  • Life insurance premium payment
  • Tuition fees paid for two children
  • Sukanya Samriddhi Yojana
  • Fixed deposits
  • Equity Linked Saving Scheme
  • Senior Citizens’ Saving Scheme
  • National Saving Certificate, etc.

Section 80D Deduction for Medical Insurance

Individuals may claim insurance premia up to Rs. 25,000 for their children, spouse and self; and Rs. 50,000 for senior citizen parents.

Section 80CCD (1B) Deduction for NPS

You can get exemptions of Rs.50,000 for contributions made to the National Pension System.

Section 80TT Deduction on Bank Interest

Interest earned from bank savings accounts and fixed or recurring deposits qualifies for relaxation in taxes up to Rs.10,000 under Section 80 TTA if you are below 60 years old, while senior citizen taxpayers can secure this relief under Section 80 TTB to the tune of Rs.50,000.

How to Pay Zero Tax on Rs.10 Lakh Salary: Tax Calculation Explained _WC

How to Pay Zero Tax on Rs.10 Lakh Salary: Tax Calculation Explained

The table below shows the calculation of deductions:

Applicable Deductions Amount Per Annum
Gross taxable income Rs.7.3 lakh
Minus: Section 80C deduction Rs.1.5 lakh
Minus: Section 80D Rs.25,000
Minus: Section 80CCD (1B) Rs.50,000
Minus: Section 80TTA Rs.7,000
Net taxable income Rs.4,98,000
Income tax payable Rs.12,400
Minus: Section 87A rebate Rs.12,400
Cess on income tax amount 0
Tax amount 0

This example denotes how one can strive for nil payable taxes on an annual CTC of Rs.10 lakh. Claiming applicable deductions reduce the net taxable income to below Rs.5 lakh making you eligible for a rebate under Section 87A. This provision states that if the net taxable income is below Rs.5 lakh, you pay zero tax.

Tax Saving Deductions Under the New Tax Regime _WC

Tax Saving Deductions Under the New Tax Regime

The new tax structure restricts the benefits of deductions and exemptions. Hence, one has to compute the payable tax on the gross taxable income. You may claim the deductions under Section 80CCD (2) for NPS contributions. Those working in the private sector are permitted maximum deductions of 10% on their salary, whereas government employees can obtain salary deductions of 14%.

The tax computation can be done as follows:

Particulars Annual Deduction
Gross salary Rs.10 lakh
Add: Savings account interest Rs.7,000
Add: Fixed deposit interest Rs.8,000
Add: Equity shares dividend Rs.5,000
Gross taxable income Rs.10,20,000
Income tax payable Rs.79,000
Add: Cess of 4% Rs.3,160
Final income tax amount Rs.82,160

Since taxpayers cannot claim deductions and exemptions under the new tax scheme, the gross taxable income is higher resulting in larger tax outgo.

Taxpayers earning Rs.10 lakh come under the 30% tax bracket which holds a higher tax liability. However, there are several tax-saving methods that taxpayers can utilise to enjoy zero tax payments. An income tax calculator can help you in your tax calculations based on both tax regimes for accurate tax savings assessment.

Frequently Asked Questions (FAQs):_10Lakhs_WC

Frequently Asked Questions (FAQs):

You can claim the deductions under Section 80C when you file your income tax returns at the end of each financial year.

According to the Income Tax Act, annual earnings up to Rs.2.5 lakh are tax-free. Income up to Rs.3 lakh is tax-exempt for ages 60 to 79 years, while those over 80 years have a tax exemption limit of Rs.5 lakh.

Yes, you can save 100% tax if you plan your taxes and investments carefully.

*Terms and conditions apply.

Zero tax on income of Rs. 10 lakh_RAC_WC

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