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How to Save Tax For Salary Above 10 Lakhs?

Updated on: 23 May, 2024 05:23 PM

In India, taxpayers are required to pay taxes depending on the slab they belong to. If you plan your taxes well and optimize your investments, you can pay zero tax even on a 10 lakh income. If you are thinking about how to save income tax on your salary, this article acts as your guide on how to save tax for a salary above 10 lakhs.

What are the Income Tax Slabs under New Regime vs. Old Regime?

An essential part of planning your taxes is to choose the regime that benefits you the most. Here are the slab rates prevailing under both the old and the new tax regimes -

Annual Income Old Tax Regime New Tax Regime
Up to 2.5 lakhs Nil Nil
2.5 lakhs to 5 lakhs 5% 5%
5 lakhs to 7.5 lakhs 20% 10%
7.5 lakhs to 10 lakhs 20% 15%
10 lakhs to 12.5 lakhs 30% 20%
12.5 lakhs to 15 lakhs 30% 25%
15 lakhs and above 30% 30%

The Slab Rates Under the New Tax Regime as Per Budget 2023

As per the latest amendment introduced in the Budget 2023, the revised tax rates under the new regime are as follows -

Income Range Rate
Up to 3,00,000 Nil
3,00,000 - 6,00,000 5%
6,00,000 - 9,00,000 10%
9,00,000 - 12,00,000 15%
12,00,000 - 15,00,000 20%
Above 15,00,000 30%

How is Taxable Salary Calculated?

Your total annual income is adjusted against various exemptions and deductions to arrive at your taxable salary. Let us understand the salary structure -
Annual Salary - Exemptions = Taxable Salary
Taxable Salary = Income - Deductions = Net Taxable Salary

*Please note that most exemptions and deductions are available only in the old tax regime.

What are Exemptions From Salary?

Here is the basic structure of an individual’s CTC and the exemptions thereof -

Salary Component Taxability
Basic Fully-taxable
Dearness Allowance Fully-taxable
House Rent Allowance (HRA) Exempt partially using the HRA calculator
Leave Travel Allowance (LTA) Ticket expenses for up to 2 trips in 4 years are exempt under section 10(5).
Mobile/ Internet reimbursement The exemption is given if it is used for office purposes.
Children's Education and Hostel Allowance Rs. 4800 per child for a maximum of 2 children
Food Maximum 26,400 annual subject to certain conditions
Standard Deduction Rs 50,000, applicable to all
Professional Tax Generally Rs 2,400 (Varies according to state)

What are the Deductions Available?

Below are the various deductions available under the old tax regime -

Section 80D - health insurance premium Exempt up to ₹25,000 for self, dependent children, and spouse.This amount will increase to 50000 if self, children and spouse are above 60. Exempt up to Rs 25,000 for parents and 50,000 for parents if they are above 60 years
Section 80E - Education loan Deduction available on interest for 8 years or till the payment is made whichever is earlier from the year of repayment taken for higher education of self, children, or spouse.
Section 80G - Donating to charity 50% or 100% of the eligible amount subject to certain conditions
Section 80C - Investing in tax-saving instruments Tax benefit of Rs.1,50,000 per year. You can invest in the following options:
  • Equity Linked Saving Scheme funds (ELSS)
  • Employees’ Provident Fund (EPF)
  • Home loan repayment and Stamp duty
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • Sukanya Smriddhi Yojana (SSY)
  • Fixed Deposit for 5 years, and more
Section 80DD - Costs to treat disabled dependents Medical expenses of disabled dependents are deductible up to -
  • 40% disability: Rs.75,000
  • 80% disability: Rs.1,25,000
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 less than
  • 20% for policies issued before 1 April 2012
  • 10% for policies issued after 1 April 2012
  • 15% for policies issued after 1 April 2013 for a person with a disability.

How is Tax Liability Calculated Under the Old Tax Regime?

Various deductions are available under the old tax regime. Given below is the tax calculation under the old tax regime. The below example shows how to save tax on a Income above 10 lakhs.

Gross Salary 10,00,000
Less: Exemptions
HRA 1,50,000
LTA 50,000
Reimbursements 32,000
Children’s education and hostel allowance 8,500
Standard Deduction 50,000
Professional Tax 2400
Taxable Salary Income 7,07,100
Less: Deductions
80C 1,50,000
80D 30,000
80E 27,500
Net Taxable Income 4,99,600
Tax on the above income 12,480
Rebate u/s 87A (Individual with an annual taxable income of up to Rs 5 lakhs is eligible for an income tax rebate of Rs12,500.) -12,480
Total Tax 0
Additionally, you are eligible to 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

How is Tax Liability Calculated Under the New Tax Regime?

Unlike the old Income Tax regime, the new regime provides only a few deductions. Below are the deductions available under the new regime as per Budget 2023 -

  • Standard Deduction - ₹50,000
  • Section 80CCD(2) - Employer’s contribution to NPS
  • Section 80CCH - Investment made in Agniveer corpus

Tax on 10 lakh income can be calculated as follows -

Gross Salary 10,00,000
Less:
HRA N.A.
LTA N.A
Children’s education and hostel allowance N.A
Standard Deduction (50,000)
Professional Tax N.A.
Taxable Salary Income 9,50,000
Less: Deductions
80C N.A.
80D N.A.
80E N.A.
Net Taxable Income 9,50,000
Tax on Rs 10 lakh under the new regime 54,600

If you are confused as to which regime to choose to minimize your tax liability, hire a CA now and get the best tax planning advice.


How to avoid paying taxes on a 10 Lakh Salary?

To achieve a tax-free status on a ₹10 lakh salary under the previous tax system in India, one can strategically utilize various exemptions and deductions. Here’s a breakdown:

Starting with the gross salary of ₹10,00,000, exemptions and deductions play a crucial role:

Exemptions:

  • House Rent Allowance (HRA): Considering the HRA component, the least of three factors can be exempted.
  • Leave Travel Allowance (LTA): Travel expenses during leave are deductible.

Deductions:

  • Section 80C: Investments in EPF, PPF, Life Insurance Premiums, etc., up to ₹1,50,000 are deductible.
  • Section 80D: Health insurance premiums for self and family are deductible, up to ₹25,000.
  • Section 80E: Interest on education loans is deductible.
  • Section 80G: Donations to specified funds are deductible.
  • Section 24(b): Interest on a home loan for a self-occupied property is deductible up to ₹2,00,000.
  • Standard Deduction: A standard deduction of ₹50,000 is allowed.

Considering hypothetical figures:

  • HRA Exemption: ₹1,20,000
  • LTA Exemption: ₹20,000
  • Section 80C Deductions: ₹1,50,000
  • Section 80D Deductions: ₹25,000
  • Standard Deduction: ₹50,000

Taxable Income = Gross Salary - (HRA Exemption + LTA Exemption) - (Section 80C Deductions + Section 80D Deductions) - Standard Deduction

With a taxable income of ₹6,35,000, the tax liability before cess would be:

Up to ₹2,50,000: Nil
₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
₹5,00,001 to ₹6,35,000: 20% of ₹1,35,000 = ₹27,000

Total tax before cess = ₹12,500 + ₹27,000 = ₹39,500

While you can't claim rebate under Section 87A since your taxable income exceeds ₹5,00,000, further deductions like Section 80E for education loan interest or Section 24(b) for home loan interest could potentially reduce your tax liability to zero.

Now you know how you can save taxes on a salary above ₹10 lakh; if you still need help calculating your taxes while e filing income tax return, our tax experts can help you calculate your taxes and maximize your tax savings. Don’t wait for the last date to file ITR; Book eCA Today!


Frequently Asked Questions

Q- Which regime is better if my salary exceeds ₹10,00,000?

If your salary equals 10,00,000, it is better to choose the old regime if you have made investments and claimed certain deductions and save 100% tax on it. At the same time, the new regime does not allow many deductions. Therefore, the new regime is better if your annual income is 10 lakhs.


Q- Is it possible to pay zero tax on the 10,00,000 salary?

Yes, you can save 100% tax on a 10,00,000 salary if you opt for the old regime and invest in the specified schemes to avail of the various deductions available.


Q- How can one claim a deduction under section 80C?

Any taxpayer who wants to claim a deduction under section 80C has to opt for the old regime and invest in various specified schemes like the PPF, NPS, Life insurance, and other tax-saving instruments.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.