How To Save Tax For Salary Above 12 Lakhs?
In India, the income tax department has set up a progressive tax regime, meaning the tax rates keep increasing with your income. However, by familiarising yourself with effective tax reduction strategies, you can benefit a lot. You can opt for various tax-saving measures to reduce your tax burden.
Budget 2024 Updates
As per the latest Finance Act 2024, changes have been made in the slab rate for the new tax regime applicable for FY 24-25 as follows -
Tax Slab | Tax Rate |
upto ₹ 3 lakh | Nil |
₹ 3 lakh - ₹ 7 lakh | 5% |
₹ 7 lakh - ₹ 10 lakh | 10% |
₹ 10 lakh - ₹ 12 lakh | 15% |
₹ 12 lakh - ₹ 15 lakh | 20% |
more than ₹ 15 lakh | 30% |
In the new tax regime, the standard deduction has been increased from Rs.50,000 to Rs.75,000, and the deduction on family pension has also been increased from Rs.15,000 to Rs.25,000.
Take a look at this article if you are looking for tips on how to save tax for a salary above Rs 12 lakh.
Tax Slabs Under Old vs New Tax Regime
As per the budget 2023 new regime of tax has been made the default regime, you can opt for either the new or the old regime while filing your taxes. Here is a difference between the two:
Tax Slab | FY 2023-24 Tax Rate (Old tax regime) | Tax Slab | FY 2023-24 Tax Rate (New tax regime) |
Up to Rs 2,50,000 | Nil | Up to Rs 3,00,000 | Nil |
Rs 2,50,000 – Rs 5,00,000 | 5% | Rs 3,00,000 – Rs 6,00,000 | 5% |
Rs 5,00,000 – Rs 10,00,000 | 20% | Rs 6,00,000 – Rs 9,00,000 | 10% |
Rs 10,00,000 and beyond | 30% | Rs 9,00,000 – Rs 12,00,000 | 15% |
NA | NA | Rs 12,00,000 – Rs 15,00,000 | 20% |
NA | NA | Rs 15,00,000 and beyond | 30% |
If you file your taxes according to the new regime, you cannot avail the deductions available under Section 80C to 80U and certain other tax benefits/exemptions are restricted to old regime only. To calculate your tax liability using both regimes, you may use the old vs new tax regime calculator.
Tax Saving Options Under New And Old Tax Regime
Let us take a look at the new and old tax regime tax slab to get an idea regarding how much tax you need to pay in case your income is above Rs 12 lakh:
New Tax Regime (FY 2023-24)
Unlike previous financial years, you can now claim certain deductions if you opt for the new tax regime. The Union Budget 2023-24 announced a list of tax deductions that you can claim under the new tax regime, which is applicable for the financial year 2023-24 and onwards:
- Standard Deduction
- Deduction for Agniveers under Section 80CCH
- Deduction of employer’s contribution to National Pension Scheme under Section 80CCD(2)
- Family pension as per section 57(iia)
- Conveyance Allowance
- Transport Allowance with respect to physically challenged.
- Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
- Interest on Home Loan on the let-out property (Section 24)
- Transport allowances in case of a specially-abled person.
Old Tax Regime (FY 2023-24)
Now let us check out all the exemptions and deductions applicable in case you opt to pay your tax using the old tax regime:
Part 1- Benefits available under the head Salary
You can find out your salary structure from the CTC, which generally looks like:
Salary Component | Taxability |
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 two years in a block of four years under 10(5). Read more |
Mobile/ Internet reimbursement | Exempt if: – used predominantly for office purposes – proofs/bills submitted |
Children's Education and Hostel Allowance | Rs. 4800 per child (max 2 children) |
Food | Rs. 50 per meal (max 2 meals a day) Annual = Rs. 26,400 (50*2*22 days*12 months) |
Professional Tax | Generally Rs 2,400 (Varies from state to state) |
Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
Part 2- General Deductions
When you are tax planning for salary above 10 lakhs, you can get deductions on the following:
Paying health insurance policy premium | 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 for notified institutions. |
Investing in tax saving instruments | 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% or severe 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 under secton/s 24b |
The 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. – Exemption is applicable in case of ULIP only if the annual premium does not exceed Rs 2,50,000 (From 1st April 2021) – Exemption is applicable in case of Life insurance other than ULIP only if the annual premium does not exceed Rs. 5,00,000 (From 1st April 2023 onwards) |
Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
Calculation Of Tax Under Old And New Tax Regime
Mr A has a Gross Salary income of Rs. 12.5 lakhs. He is also eligible to claim an HRA exemption of Rs. 60,000, LTA exemption of Rs. 20,000, and Profession tax of Rs 2,400. He further invested Rs. 1.5 lakhs in PPF, Paid medical insurance premium of Rs. 50,000 for parents (Senior Citizen), Paid Interest on Education loan of Rs. 25,000. Tax calculation under new and old tax regimes will be as under:
Particular | Old Tax Regime | New Tax Regime |
Gross Salary u/s 17(1) | 12,50,000 | 12,50,000 |
Less: Exemption u/s 10 |
|
|
HRA Exemption | 60,000 | ❌ |
LTA Exemption | 20,000 | ❌ |
Reimbursement | NA | ❌ |
Children's education and hostel allowance | NA | ❌ |
Less: Deduction u/s 16 |
|
|
Standard deduction | 50,000 | 50,000 |
Deduction of Professional Tax Paid | 2,400 | ❌ |
Income under the Head Salary | 11,17,600 | 12,00,000 |
Less: Deduction under Chapter VI-A |
|
|
Section 80C | 1,50,000 | ❌ |
Section 80D | 50,000 | ❌ |
Section 80E | 25,000 | ❌ |
Net Total Income | 8,92,600 | 12,00,000 |
Income Tax (Including Surcharge and Cess) | 94,660 | 93,600 |
Less: Rebate u/s 87A | 0 | 0 |
Tax Liability (Including Cess) | 94,661 | 93,600 |
In the above example, the new tax regime is more beneficial in comparison to the old tax regime inspite of the deduction and exemption claimed. This is because the new tax regime provides lower tax slab rates. However, if more deductions are available to the taxpayer then the old tax regime will be beneficial.
Final Word
If you learn the intricacies of the taxation system, you can judiciously use the old and new tax regimes to save taxes. If you want to opt for the old tax regime, invest in schemes like the National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS) Investment, Sukanya Samridhhi Yojana (SSY), and many more. If you wish to opt for the new tax regime, you can still plan your investments and save yourself from paying hefty taxes by claiming a deduction under Standard deduction, Employer contribution to NPS etc.
Related Articles:
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How To Save Tax For Salary Above 10 Lakhs?
How To Save Tax For Salary Above 15 Lakhs?
How To Save Tax For Salary Above 20 Lakhs?
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