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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.
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% |
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% |
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.
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) |
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:
|
| Section 80DD - Costs to treat disabled dependents | Medical expenses of disabled dependents are deductible up to -
|
| 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
|
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 |
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 -
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.
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:
Deductions:
Considering hypothetical figures:
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!
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.
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.
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.
