Salaried individuals are required to pay taxes according to their income slab as per government stipulation. Among all the tax brackets, the 30% tax range for earnings above Rs.15 Lakh carries the highest tax rate. Taxpayers of this particular salary slab have to bear almost one-third of their wages as taxes, lowering their disposable income.
The government, at the same time, provides multiple deductions and exemptions under various sections of the Income Tax Act of 1961. This is done to reduce the tax liability of taxpayers and optimise tax savings. Furthermore, tax slabs and rates are also revised periodically with the aim to bring down the taxation burden. Individuals can claim these concessions, as applicable, while filing tax returns every financial year if they fulfil the prescribed conditions and are deemed eligible for them.
Know Your Income Tax Slab
Your income and age are major determinants of your tax liability. Here are the basic tax slabs for individuals below 60 years:
- A tax slab of 5% is categorised for annual income between Rs.2.5 Lakh to Rs.5 Lakh. These taxpayers can enjoy full tax rebates
- 10% tax slab applies to those drawing a salary between Rs.5 Lakh to Rs.7.5 Lakh per annum
- Individuals earning above Rs.15 Lakh each year fall under the 30% tax slab
- Taxpayers also need to bear an additional 4% health and education cess
- A new slab, launched in 2020, makes provisions for those willing to forego some deductions and exemptions
Deductions on Your Earnings
Your gross salary comprises specific components such as house rent allowance, leave travel allowance, medical allowance, professional tax and so on, which are liable to tax deductions. Employers deduct these amounts before issuing your salary, better known as the net salary.
Later, employees can claim these deductions and several other exemptions when they file their annual tax returns under the old tax regime. However, individuals who opt for the new tax regime cannot avail of certain deductions. Instead, they are offered lower tax rates under the new tax structure.
Some Important Tax Deductions for 30% Tax Bracket
Individuals who fall in the 30% tax bracket can consider the following noteworthy provisions for tax relaxations:
Section 80C: Tax Benefits on Investments
Section 80C is a widely exercised tax-saving option that allows deductions to the tune of Rs.1.5 Lakh on your taxable income. Those in the 30% tax bracket may claim these concessions to save up to Rs.45,000 in taxes.
The Indian government permits the below-mentioned deductions under Section 80C:
- Home loan principal amount repayment
- Stamp duty and registration fees paid for a house property
- Life insurance premium payment (up to 10% of the assured sum)
- 5-year fixed deposits
- Public Provident Fund (PPF)
- Contributions to Employees’ Provident Fund (EPF)
- Equity Linked Saving Scheme (ELSS) mutual funds
- Tuition fees paid for children (up to two children)
- Sukanya Samriddhi Yojana (SSY)
- Senior Citizens’ Saving Scheme (SCSS)
- National Saving Certificate (NSC), etc.
Section 80D: Save More Tax Through Medical insurance
Section 80D offers deductions on the payment of health insurance premia. One can enjoy concessions up to Rs.25,000 if they are below 60 years old or Rs.50,000 if they are senior citizens. It includes insurance cover for your children, spouse, self and elderly parents.
Thus, assuming your eligibility for deductions of Rs.50,000 for yourself and a further Rs.50,000 for your parents, you may gain total tax relaxation of Rs.1 Lakh. This translates into tax savings up to Rs.30,000 (computed as 30% of Rs.1 Lakh).
Section 80CCD (1B): Tax Saving Under Pension Scheme
This section proves helpful when you invest in the National Pension System (NPS). Contributions to NPS are eligible for tax relief under Section 80CCD which falls within the ambit of Section 80C deductions of Rs.1.5 Lakh. In addition, Section 80CCD (1B) permits further concessions on NPS contributions up to Rs.50,000 leading to tax savings of Rs.15,000 (calculated as 30% of Rs.50,000).
Section 24: Save Taxes on Home Loans
Individuals repaying housing loans are entitled to substantial home loan tax benefits on both the principal and interest portions of their instalments. You can receive tax relief under Section 80C for the loan principal and also avail tax deduction on home loan interest through Section 24 (b) up to Rs.2 Lakh. Hence, before applying for a house loan, remember to match the home loan eligibility requirements of your lender to acquire low-interest loans, which coupled with tax relaxations can decrease the overall cost of credit.
Section 80TT: Concessions for Bank Interest Savings
Interest accrued on savings accounts held in banks is allowed as deductions under Section 80TTA up to Rs.10,000 for taxpayers below 60 years of age. In the case of senior citizens, interest earned on saving accounts and fixed or recurring deposits also qualify for concessions up to Rs.50,000 under Section 80TTB.
Section 80EEB: Tax Relief on Electric Vehicles
Individuals who avail of loans for purchasing electric vehicles can claim relaxation in taxes up to Rs.1.5 Lakh from their taxable income, on the loan interest paid under a newly introduced provision of Section 80EEB.
There are several other tax-saving measures, apart from the ones enumerated above, that can lower your taxable income. When planning taxes, first understand the deductions available to you and see if you qualify for them. Since taxpayers can file their taxes under either the old tax regime or the new tax structure, one should carefully consider the implications of each scheme on their finances and tax savings. In this regard, an Income Tax Calculator can assist you in estimating your payable taxes based on both regimes.
Frequently Asked Questions (FAQs):
The income tax slabs in India are divided into the old tax regime, which has three tax slabs with higher tax rates; and the new tax regime constituting lower tax rates and six tax slabs.
| Income Tax Slab | New Tax Regime (Before 2023 Budget) | New Tax Regime (After Budget 2023) |
|---|---|---|
| Up to Rs.2.5 Lakh | Nil | Nil |
| Rs.2.5 Lakh to Rs.3 Lakh | 5% | Nil |
| Rs.3 Lakh to Rs.5 Lakh | 5% | 5% |
| Rs.5 Lakh to Rs.6 Lakh | 10% | 5% |
| Rs.6 Lakh to Rs.7.5 Lakh | 10% | 10% |
| Rs.7.5 Lakh to Rs.9 Lakh | 15% | 10% |
| Rs.9 Lakh to Rs.10 Lakh | 15% | 15% |
| Rs.10 Lakh to Rs.12 Lakh | 20% | 15% |
| Rs.12 Lakh to Rs.12.5 Lakh | 20% | 20% |
| Rs.12.5 Lakh to Rs.15 Lakh | 25% | 20% |
| Above Rs.15 Lakh | 30% | 30% |
Investments in stocks can ensure tax concessions. Section 80CCG allows deductions to first-time investors earning below Rs.12 Lakh annually if they invest in certain shares and mutual funds. One can also save tax through long-term capital gains incurred by selling long-term capital assets (owned for over three years) and then investing in specific instruments. Long-term gains made through the sale of equity shares are tax-exempt when held for more than a year.
The five classifications of income are:
Salary income
Revenue from capital gains
Profit or gains from a business or profession
Income from real estate
Other sources of income
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