There are multiple tax-saving techniques that taxpayers can make use of in order to reduce their tax burdens. These methods come in handy for those individuals who have a high yearly income.
If you belong to the above 50 lakh tax slab, you can opt to reduce the tax liability using any of the tax-saving options below. The guide below states how much tax will be deducted for 50 lakhs and various tax-saving methods you can use to reduce your yearly taxable income.
As per the new income tax guidelines, 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 majority of the tax benefits. To calculate your tax liability using both regimes, you may use the old vs new tax regime calculator.
You can conduct your tax planning by making use of certain exemptions and deductions that are allowed by the Income Tax Act. But you first need to understand your salary structure.
Your salary component may include various tax-exempt allowances. The remaining salary will be your taxable income.
Therefore, we can maximize tax savings through exemptions and deductions.
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 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's Education and Hostel Allowance | Rs 4800 per child (max 2 children) |
Food | Rs 50 per meal (max 2 meals a day)Annual= Rs. 31,200 (50*2*26 days*12 months) |
Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
Professional Tax | Generally Rs 2,400 (Varies from state to state) |
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 |
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% 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. |
These are some of the ways in which you can reduce your tax burden. However, there are several terms and conditions that are associated with each tax-saving method. The tax deductions can be claimed while filing for Income Tax Returns.
Individuals opting for the new tax regime have limited scope of claiming exemption or deduction. The main purpose of introducing a new regime is to slowly remove all the deductions and exemptions available in the Income-tax Act. In exchange for such exemption and deduction, taxpayers are provided with a lower tax slab providing them an incentive to switch over to the new regime.
However, even in the new regime, taxpayers can still claim certain exemptions or deductions as follows
In the above discussion, we understood the tax deductions and exemptions available under the old and new tax regime. Keeping in mind all the tax-saving investments, let us calculate the income tax under each regime and compare the tax liability.
Particulars | Under the Old tax regime | Under the new tax regime |
Gross Salary | 50,00,000 | 50,00,000 |
Less: |
| |
HRA | (3,50,000) | ❌ |
LTA | (60,000) | ❌ |
Children's education and hostel allowance | (15,000) | ❌ |
Standard Deduction | (50,000) | (50,000) |
Professional Tax | (2400) | ❌ |
Taxable Salary Income | 45,22,600 | 49,50,000 |
Less: Deductions |
| |
80C (Refer Note below) | (1,50,000) | ❌ |
80D | (50,000) | ❌ |
80E | (25,000) | ❌ |
Net Taxable Income | 42,97,600 | 49,50,000 |
Tax on the above income | 11,45,851 | 12,32,400 |
NA | NA | |
Total Tax (Including 4% cess) | 11,45,851 | 12,32,400 |
Moreover, eligible individuals can also claim these deductions:
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:
In the above example, the tax liability paid under the old tax regime is lesser than the new tax regime. Hence in the given example, the taxpayer has to choose the old tax regime to avail minimum tax liability.
In conclusion, if you are a taxpayer with income more than 50 lakhs investing in tax-saving options will be beneficial while paying tax to the government.
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