How To Save Tax For Salary Above 10 Lakhs?

In India, the Income Tax Department taxes an individual’s income based on the tax slab they belong to. Taxpayers are always looking for measures to pay zero tax on salary. But they miss out on salary optimization. If you want to pay zero tax on a salary above 10 lakh, give this article a read. Here, you will find various tips on tax planning for a salary above 10 lakhs.

Budget 2025 Updates

As per the budget 2025, the income up to Rs. 12,00,000 will have zero tax liability for the FY 2025-26 (AY 2026-27) under the new tax regime. Here's how:

The revised tax slabs under the new regime for FY 2025-26 (AY 2026-27) are as follows:

Income Tax Slabs	Tax Rate
Upto Rs. 4,00,000	NIL
Rs. 4,00,001 - Rs. 8,00,000	5%
Rs. 8,00,001 - Rs. 12,00,000	10%
Rs. 12,00,001 - Rs. 16,00,000	15%
Rs. 16,00,001 - Rs. 20,00,000	20%
Rs. 20,00,001 - Rs. 24,00,000	25%
Above Rs. 24,00,000	30%

With the revised tax structure, individuals earning up to Rs. 12,00,000 will have no tax liability due to the increased rebate of Rs. 60,000. For salaried individuals, the tax liability will be zero for incomes up to Rs. 12,75,000, due to the Rs. 75,000 standard deduction.

Note:

• The marginal relief on rebate is still applicable. 
• The rebate is not available for income that is taxed at special rates (e.g., capital gains under section 112A).

Income Tax Slabs Under Old vs New Tax Regime

Let us first understand the tax regimes and how to choose between old and new tax regimes. These are the slab rates under the old  tax regime vs the new tax regime:

As per the new income tax guidelines, you can opt for either the new or the old regime while filing your taxes, with the new tax regime being your default tax regime from FY 2024-25 onwards. Here is a difference between the two:

Tax Saving Options 

Understanding of your Salary structure, available exemptions, and deductions is necessary to save tax on your salary income.

Understanding Salary Structure:

Your salary component may include various tax-exempt allowances. The remaining salary will be your taxable income. 

Therefore, we can maximise tax savings through exemptions and deductions. It is important to note that most of the deductions are only available in the old tax regime.

Exemptions and Deductions Under New Tax Regime

Unlike the Old tax regime, the New tax regime has minimal scope for claiming deductions or exemptions. Deductions that are available in the New tax regime are as follows.

1. Standard deduction of Rs 75,000. This can be claimed only for individuals having income from salary.
2. Section 80CCD(2) - Employer Contribution to NPS 
3. Section 80CCH - Investment made in Agniveer Corpus
4. Section 57(iia) - Family Pension received - One Third of the pension amount subject to a maximum limit of Rs.25,000 for FY 2024-25.
5. Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA) 
6. Interest on Home Loan on the let-out property (Section 24)
7. Transport allowances in case of a specially-abled person. 
8. Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment. 
9. Any compensation received to meet the cost of travel on tour or transfer.

Exemptions and Deductions Under Old Tax Regime

Part 1- Exemptions

You can find out your salary structure from the CTC, which generally looks like:

Part 2- Deductions

When you are tax planning for salary above 10 lakhs, you can get deductions on the following:

How to Save Taxes for 10 Lakh Salary? 

Irrespective of the regime you choose, you can consider the below points to derive maximum benefits of the deductions available under the Income Tax Act. 

Claim Standard Deduction 

• Standard deduction is the favorite deduction among both general public and professionals.
• It is available against salary income without any conditions attached. 
• If you choose new tax regime, a standard deduction of Rs.75,000 is available. Rs.50,000 of standard deduction is available in case of old regime.

Choose the Most Beneficial Regime 

• Lets understand the tax implications related to slab rates. Lower the slab rates, higher will be tax liability. For example, when the income upto Rs. 2,50,000 is tax exempt in the old tax regime. Whereas, the income up to Rs.3,00,000 is exempt for new tax regime. 
• So we need to pay tax for amount exceeding Rs.2,50,000 under the old regime. Whereas in new regime, no tax liability arises as long as it does not exceed Rs.3,00,000. So, we can infer that higher the slab rates, more beneficial it is.  
• The old tax regime has a lot of tax deduction options with low slab rates. Whereas, the new tax regime has limited tax deduction options with higher slab rates.
• You can analyze and find the most beneficial regime for you, considering the tax deduction investments you have made and level of income. Choice of beneficial regime greatly reduces tax liability.

Claim Employer’s Contribution to NPS u/s 80CCD(2)

• Section 80CCD(2) allows deduction for contribution made by employer in National Pension Scheme (NPS). 
• Deduction is available under both new regime for this amount, though the limit for deduction differs according to choice of regime. 

The following table describes the quantum of deduction available under both the regimes for contributions made by the employer in the NPS scheme under section 80CCD (2)

Claim Exemption on Gifts Received

• Gifts received either in cash or through kind if the amount or the value of the gift received is up to Rs.50,000 is not taxable under section 56 of the Income Tax Act. 
• If the amount received or the monetary value of the gift received in kind exceeds Rs.50,000, then entire amount is taxable. 
• This tax saving option is available for both old and new tax regimes.

Claim Deduction for Interest on Borrowing for Let Out Property

• If the assessee has rented out his property (residential or commercial building), deduction under section 24 can be availed. 
• The amount of interest paid for amount borrowed for purchase or construction of immovable property can be allowed as a deduction. 
• There is no maximum limit fixed for claiming this deduction. 

Gratuity and Leave Encashment

• Exemption is available for the amount received as gratuity and leave encashment at the end of the employment tenure. The employee may either retire or terminate the employment before retirement. 
• The Income Tax Act provides the maximum amount eligible for deduction for both gratuity and leave encashment. 
• This exemption is equally available for both old and new tax regimes.

Claim Deduction on Additional Employee Cost

Deduction under section 80JJA is available irrespective of choice of regime of the assessee. 30% of the amount expended on additional employees can be allowed as a deduction.  

Claim Deduction on Agniveer Corpus Fund

• Contribution made by the Central Government in Agniveer Corpus Fund of the assessee is allowed as a deduction under section 80CCH(2). 
• Individuals enrolled in the Agnipath Scheme for the armed forces are eligible to claim this deduction.
• There is no maximum limit for deduction under this section. The entire amount contributed by Central Government can be allowed as a deduction
• This deduction is also available under both old and new regimes.

Example on Calculation of Tax under New and Old Tax Regime

Mr A has a salary income of Rs. 10 lakhs. He is eligible to claim an HRA exemption of Rs. 1.5 lakhs, LTA of Rs 40,000, Children's education allowance of Rs 9,600, and Profession tax of Rs 2,400. He has also invested in PPF of Rs. 1.5 lakhs eligible for deduction under section 80C, Medical insurance premium of Rs. 50,000 and paid interest on education loan of Rs. 55,000. Tax calculation will be as follows

Additionally, you may claim these deductions under the Old Tax Regime if eligible:

**Note: You might only sometimes have a home loan or be interested in the investment plans listed under Section 80C. However, you may consider these investments to make use of the entire Rs 1.5 lakh limit under 80C: 

• EPF: Around Rs 30,000 – Rs 72.000, i.e., 12% of your basic + DA (contribution already made by your employer)
• Term plan insurance: Rs 12,000 premium (Around Rs 1 Crore cover)
• ULIP or endowment plant: Rs 12,000 premium
• ELSS mutual funds: Rs 60,000 (Investment: Rs 500 per month SIP, Returns- 12% CAGR, Lock-in-period: 3 years)
• Children’s Education fees: (Rs 25,000 to Rs 1 lakh) 

In the above 2 scenarios, you will observe that zero tax liability arises after claiming deduction and exemption in the old tax regime. But in the new tax regime, there is a tax liability of Rs. 44,200. 

Thus it is very important that you check based on your available salary, exemption and deduction which tax regime is more beneficial for you. You may use this old vs new tax regime calculator.

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