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 optimisation. 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.

Latest Update on Budget 2024

Financial Bill 2024 has proposed change in the tax slab, and also there has been an increase in standard deduction under the new tax regime from ₹ 50,000 to ₹ 75,000 and family pension deduction from ₹ 15,000 to ₹ 25,000. The newly proposed tax slab is as follows;

Introduction of new tax slabs will save tax on an individual of Rs 17,500.

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 2023-24 onwards. Here is a difference between the two:

Budget 2024 update: There is no change in tax slabs as per Budget 2024.

Ways To Save Tax On 10 lakhs Salary

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 50,000. 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.
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 Pay Zero Tax on a 10 Lakh Salary? 

Let us practically see a tax computation on how you can pay zero tax on a 10 lakh salary under both 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. 54,600. 

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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