How To Save Tax For Salary Above 7 Lakhs?

The 2023-24 Budget proposed some major tax reforms by introducing tax rebates on an income up to ₹7 lakhs under the new tax regime. This means that taxpayers who have an income below ₹7 lakhs will not have to pay any tax at all if they choose the new tax regime. Previously, there were limited exemptions or deductions; however, the FY 2023-24 Budget has announced various exemptions and deductions under the new tax regime. 

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 - 

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. 

Before filing your income tax return this year, let us understand how you can save tax on your salary with an example. 

How To Save Tax If You Have Annual Salary Of Above Rs 7 Lakh?

Let’s say your gross salary is Rs.7,50,000. In the present scenario, your default tax payment system will be the new tax regime applicable from 1st April 2023. If you have income from Salary, then up to Rs 7,50,000 taxable income tax liability will be zero if you opt for the new tax regime. This zero-tax liability is possible even without claiming any deductions. 

Tax Slabs Under Old vs 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. Here is a difference between the two:

Tax Saving Under New Regime (FY 2023-24) 

Although you can use various exemptions and deductions under the old tax regime, you can balance that with the Tax Rebate under Section 87A in case you opt for the new tax regime. 

The tax rebate limit under Section 87A has been increased from FY 2023-24. It was previously set at Rs.12,500 for income up to Rs. 5 lakhs. However, in the case of the new tax regime, the tax rebate has been increased to Rs 25,000 if the taxable income is less than Rs 7,00,000 and continues to be Rs.12,500 on income up to Rs 5 lakh under the old tax regime. 

You can also claim these deductions in the new tax regime:

• Standard deduction of Rs 50,000 for salaried individuals
• Section 80CCD(2) - Employer's contribution to NPS
• Section 80CCH: Investment in the Agniveer Corpus Fund
• Section 57(iia) - Family Pension received.
• 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. 
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment. 
• Any compensation received to meet the cost of travel on tour or transfer.

Tax Saving Under Old Regime (FY 2023-24) 

if you opt for the old tax regime, you can avail of tax deductions and exemptions under various sections of the Income Tax Act. 

Here is a list of some of the allowable deductions applicable in the case of the old regime:

• Section 80C: Exemption of up to Rs. 1.5 lakh on investments made in pension funds, mutual funds, ULIPs, government savings schemes, life insurance premiums, home loan principal amount, education fees, etc. 
• Section 80CCD: Additional exemption of Rs. 50,000 if you invest in the National Pension Scheme. 
• Section 80D: Tax deduction on health insurance premium payments made towards self or parents. 
• 80TTA: Deduction on Savings account interest. 
• 80G: Donations to charitable organisations
• Professional Tax Deduction under section 16
• Exemption under Section 10 is allowed for the below
  • House Rent Allowance
  • Relocation Allowance
  • Leave Travel Allowance
  • Mobile Reimbursement

Example Under Old And New Tax Regime Tax For Above 7 Lakh Salary

Mr. A has a salary income of Rs 7,50,000 in FY 2023-24. He is eligible for an HRA exemption of Rs 50,000. Section 80C of Rs. 50,000. Now compute tax liability under the old and new tax regime. Which will be the best tax regime to choose for him?

In the above example, the tax liability paid for income for the salary of Rs 7.5  lakh is Rs. 44,200. In the old regime, with available deductions, the tax liability is Rs. 44,200 and under the new tax regime, even without claiming a deduction, the tax liability paid is zero. Thus, it is important to calculate the tax liability under both the regimes and select the most beneficial one.

However, if he opts for the old tax regime, he will have to file Form 10-IEA before the due date of filing ITR (such a Form needs to be submitted only If he has business income and this is not applicable if you are filing ITR 1 or 2).

Pay Zero Tax On a 7 Lakh Salary

If you earn Rs 7 lakh, opting for the new regime will benefit you because of the tax rebate. However, if you opt for the old tax regime, you must make some investments to avail of deductions and exemptions. 

Final Word

Under the old tax regime, to reduce your tax liability, you can invest in tax-saving instruments like the Employee’s Provident Fund, Public Provident Fund, National Pension Scheme, Sukanya Samridhhi Yojana, Equity Linked Savings Scheme etc. If you opt for a health insurance policy, whether for yourself or your children or parents, you can claim tax relief.

Under the New Tax Regime, there are very limited options to claim deductions like Standard deduction, NPS Contribution by employer, Gratuity, and Leave encashment exemption.

Thus, a comparative analysis between the new and old tax regimes is essential to identify the best option for you.

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