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How to Save Tax For Salary Above 10 Lakhs?

Updated on :  

08 min read.

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 salary above 10 lakhs.

Income tax slabs under old income tax regime vs new income 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 income tax regime vs new income tax regime:

Annual IncomeOld Tax RegimeNew Tax Regime
Up to Rs 2.5 lakhsNilNil
>2.5 lakhs – Rs 5 lakhs5% (however, full rebate)5%
>5 lakhs – Rs 7.5 lakhs20% + Rs. 12,50010% + Rs.12,500
>7.5 lakhs – Rs 10 lakhs20% + Rs. 12,50015% + Rs.37,500
>10 lakhs – Rs 12.5 lakhs30% + Rs 1,12,50020% + Rs.75,000
>12.5 lakhs – Rs 15 lakhs30% + Rs 1,12,50025% + Rs.1,25,000
>15 lakhs and above30% + Rs 1,12,50030% + Rs.1,87,500

It is important to note that you will not receive any deduction under the new tax regime. Therefore, all the deductions discussed later in this article apply to only the old tax regime.

You may also use this old vs new tax regime calculator

Ways to save tax on 10 lakhs salary

Understanding Salary Structure:

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

  • Salary (-) Exemptions = Taxable Salary Income
  • Taxable Salary Income (-) Deductions = Net taxable income. 

Therefore, we can maximise tax savings through exemptions and deductions.

Part 1- Exemptions

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

Salary ComponentTaxability
Basic Fully-taxable
Dearness Allowance Fully-taxable
House Rent Allowance (HRA)Exempt up to a certain limit. Calculate now
Leave Travel Allowance (LTA)Actual travel ticket expenses are exempt for 2 trips in 4 years under 10(5). Read more
Mobile/ Internet reimbursement Exempt if:
– used predominantly for office purposes – proofs/bills submitted
Children Education and Hostel allowanceRs. 4800 per child (max 2 children)
FoodRs. 50 per meal (max 2 meals a day)Annual= Rs. 31,200 (50*2*26 days*12 months)
Standard DeductionRs 50,000 (Will be given to all without any restrictions)
Professional TaxGenerally Rs 2,400 (Varies from state to state)

Part 2- Deductions

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

Paying
health
insurance
policy
premium
(Section 80D)
Self, your spouse, and your dependent children:
Rs 25,000 (Rs 50,000 if aged 60 and above)
Parents: Rs 25,000 (Rs 50,000 if aged 60 and above)
Opting for an
education
loan (Section 80E)
Interest deduction for 8 years from the year of repayment of loan taken for the higher education of yourself, your spouse, dependent children, or a student of whom you are
the legal guardian
Donating
to charity (Section 80G)
50% or 100% of the eligible amount
Investing
in tax
saving
instruments
(Section 80C)
Tax benefit of Rs.1,50,000 per year. You can invest in the
following options:
– Employees’ Provident Fund (EPF)
– Public Provident Fund (PPF)
– Equity Linked Saving Scheme funds (ELSS)
– Home loan repayment and Stamp duty
– Sukanya Smriddhi Yojana (SSY)
– National Savings Certificate (NSC)
– Fixed Deposit for 5 years, and more
Costs to
treat
disabled dependents (Section 80DD)
If you have disabled dependents for whom you bear
medical expenses, you are eligible for the tax relief: 
– 40% disability: Rs.75,000
– 80% disability: Rs.1,25,000
Deductions
on home
loan
payments
Principal amount: Upto Rs 1.5 lakhs u/s 80C
Interest amount: Upto Rs 2 lakhs paid u/s 24b  
Maturity
amount of a Life
Insurance
Policy
Maturity proceeds are tax exempt if the sum assured is ≤:
– 20%: policies issued before 1 April 2012
– 10%: policies issued after 1 April 2012
– 15%: policies issued after 1 April 2013 for a person with disability or disease.

How to pay zero tax on a 10 lakh salary? Tax calculation example 

Let us practically see a tax computation on how you can pay zero tax on a 10 lakh salary.

Gross Salary10,00,000
Less:
HRA(1,50,000)
LTA(40,000)
Reimbursements(24,000)
Children’s education and hostel allowance(9,600)
Standard Deduction(50,000)
Professional Tax(2400)
Taxable Salary Income7,24,000
Less: Deductions
80C (Refer note below)(1,50,000)
80D(50,000)
80E(25,000)
Net Taxable Income4,99,000
Tax on the above income12,450
Rebate u/s 87A(12,450)
Total Tax0

Additionally, you may claim these deductions if eligible:

Interest on home loan deduction u/s 24b(2,00,000)
Home loan 80EEA(1,50,000)
Investments in National Pension Scheme (NPS) u/s 80CCD(1B)( 50,000)

Note: You might not always 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: 

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

According to the new tax regime, if your annual income ranges from Rs.10.00 lakhs to Rs.12.50 lakh, the tax deduction rate will be Rs.75,000 + 20% above Rs.10,00,000. 
Therefore the tax under the new regime shall be Rs. 95,000 plus cess.

These are some of the most common ways you can opt for while planning to save tax for salary above Rs 10 lakh. However, it is always recommended that you take the help of a tax professional to claim maximum deductions. 

FAQs on How to Save Tax on 10 Lakhs Salary

How to claim deductions under Section 80C?

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

How much income is tax-free according to the Income Tax Act?

According to the Income Tax Act, an individual earning up to Rs.2,50,000 per year is tax-free.
However, for people aged 80 and above, Rs.5,00,000 is tax-exempt. Likewise, people aged 60 to 79 have a tax exemption limit of Rs.3,00,000. 

Can one claim Rs.1.5 lakh deduction for more than one investment policy?

No, according to Section 80C, Rs.1.5 lakh is the maximum deduction amount you can claim regardless of the number of investment policies. However, if you form a HUF, you can avail the 80C benefits of Rs.1.5 lakh for yourself individually and Rs. 1.5 lakhs for the HUF. 

Can you save 100% tax?

Yes, it is possible to save 100% on tax. However, it requires adequate tax planning and investments.

 Can one avail tax deductions by investing in post office schemes?

Yes, you can save taxes under Section 80C of the Income Tax Act by investing in post office schemes

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