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  7. How To Save Tax For Salary Above 15 Lakhs?

How To Save Tax For Salary Above 15 Lakhs?

Updated on: 14 Feb, 2025 03:22 PM

Finance Minister Nirmala Sitharaman introduced the Union Budget for FY 2025-26. While the new tax regime has undergone major changes, the old tax regime was completely ignored again. The old tax regime continues to offer the same deductions and exemptions in the financial year 2025-26. This makes it clear that the government aims to focus entirely on the new tax regime to encourage more taxpayers to adopt it. Before discussing how you can save tax if your salary is above ₹15 lakh, we need to compare the tax calculations under the old and new tax regimes for the financial years 2024-25 and 2025-26.

Contents

Comparison of Tax Slabs Under the Old Tax Regime and the New Tax Regime for FY 2025-26

The old tax regime offers several deductions that are not available under the new regime. However, the tax rates in the new regime are comparatively lower than those in the old tax regime.

Tax Slab Tax Rate FY 2025-26 (Old tax regime) Tax Slab Tax Rate FY 2025-26 (New tax regime)
Up to ₹2,50,000 Nil Up-to ₹4,00,000 Nil
₹2,50,000 –₹5,00,000 5% ₹4,00,001 - ₹8,00,000 5%
₹5,00,000 – ₹10,00,000 20% ₹8,00,001 - ₹12,00,000 10%
₹10,00,000 and beyond 30% ₹12,00,001 - ₹16,00,000 15%
N/A N/A ₹16,00,001 - ₹20,00,000 20%
N/A N/A ₹20,00,001 - ₹24,00,000 25%
N/A N/A Above ₹24,00,000 30%

Note:

  • The tax slabs mentioned above under the old tax regime apply to individuals below 60 years of age. While the basic exemption limit is ₹3,00,000 for individuals aged between 60 and 80 years and ₹5,00,000 for those above 80 years, the new tax regime remains the same for all individuals, regardless of age.
  • Income up to ₹12 lakhs will result in no tax liability. The Basic Exemption Limit has been raised to ₹4,00,000. Moreover, the rebate under Section 87A has been increased to ₹60,000 under the new tax regime, up from the previous ₹25,000. Due to this higher rebate, individuals with an income of up to ₹12,00,000 will now have zero tax liability.

Tax Savings under the Old Tax Regimes

If your income falls within the above ₹15 lakh tax slab, you can benefit from the following tax deductions.

Exemptions under the Old Tax Regime:

Salary Component Taxability
Basic Salary Fully-taxable
Dearness Allowance Fully-taxable
HRA (House Rent Allowance) Exempt up to a specific limit.
LTA (Leave Travel Allowance) Actual travel ticket costs are exempt for two travels in 4 years under Section 10(5).
Mobile/Internet Reimbursement Exempt if:
  • Used especially for office purposes
  • Proofs/bills are submitted
Children's Education and Hostel Allowance ₹4,800 per child (maximum two children)
Food Allowance ₹50 per meal (maximum two meals a day)
Annual exemption: ₹26,400 (₹50 × 2 × 22 days × 12 months)
Professional Tax Generally ₹2500(varies by state)

Deductions under the Old Tax Regime:

Category Details
Health Insurance Premium (Section 80D) Premiums paid for health insurance:
  • Self, spouse, and dependent children: ₹25,000
  • Parents: ₹25,000
  • (₹50,000 if any of above aged 60 or above)
Education Loan Interest (Section 80E) Interest paid on loans for higher education (self, spouse, children, or a legal ward):
  • Deduction available for 8 years starting from the repayment year.
Charitable Donations (Section 80G) Donations to eligible charities:
  • 50% or 100% of the donated amount, depending on the charity.
Tax-Saving Investments (Section 80C) Annual tax benefit of up to ₹1,50,000. Investment options include:
  • Employees’ Provident Fund (EPF)
  • Public Provident Fund (PPF)
  • Equity Linked Saving Scheme (ELSS)
  • Home loan principal repayment and stamp duty
  • Sukanya Samriddhi Yojana (SSY)
  • National Savings Certificate (NSC)
  • 5-year fixed deposits, and more
Medical Expenses for Disabled Dependents (Section 80DD) Tax relief for medical expenses of disabled dependents:
  • 40% disability: ₹75,000
  • Severe (80% or more) disability: ₹1,25,000
Home Loan Deductions
  • Principal repayment: Up to ₹1.5 lakhs under Section 80C
  • Interest payment: Up to ₹2 lakhs for self occupied property & whole amount of interest in case of let out property under Section 24(b)
Life Insurance Maturity Proceeds Tax-exempt if the sum assured meets the following criteria:
  • Policies issued before 1 April 2012: Sum assured ≤ 20% of premiums
  • Policies issued after 1 April 2012: Sum assured ≤ 10% of premiums
  • Policies issued after 1 April 2013 for disabled/ill individuals: Sum assured ≤ 15% of premiums
Standard Deduction A flat deduction of ₹50,000 for all salaried individuals in case of old regime and Rs. 75,000 in case of new regime without any restrictions.

Note: While you may not always have a home loan or be inclined toward the investment options listed under Section 80C, you can still maximize the ₹1.5 lakh limit by considering the following:

  • ELSS Mutual Funds: Invest ₹60,000 (e.g., ₹500/month SIP) with an expected return of 12% CAGR and a 3-year lock-in period.
  • Term Plan Insurance: Pay a premium of ₹12,000 for coverage of approximately ₹1 crore.
  • ULIP or Endowment Plan: Allocate ₹12,000 as a premium.
  • Children’s Education Fees: Deduct expenses ranging from ₹25,000 to ₹1 lakh.
  • EPF Contributions: Contribute around ₹30,000 to ₹72,000 annually (12% of your basic salary + DA, with matching contributions from your employer).

Tax Calculation for an Annual Income of Rs 15 Lakh

Let’s break down the tax liability for an individual earning Rs 15 lakh annually under both the Old and New Tax Regimes.

Calculation Under Old Tax Regime

Gross Income: Rs 15,00,000

Deductions:

  • Standard Deduction: Rs 50,000
  • Section 80C (Maximum): Rs 1,50,000
  • Section 80D (Maximum): Rs 1,00,000
  • Home Loan Interest (Section 24b): Rs 2,00,000

Total Deductions:
Rs 50,000 + Rs 1,50,000 + Rs 1,00,000 + Rs 2,00,000 = Rs 5,00,000

Taxable Income:
Rs 15,00,000 - Rs 5,00,000 = Rs 10,00,000

Tax Calculation:

  • 0 - Rs 2.5 lakh: Nil
  • Rs 2.5 lakh - Rs 5 lakh: 5% of Rs 2.5 lakh = Rs 12,500
  • Rs 5 lakh - Rs 10 lakh: 20% of Rs 5 lakh = Rs 1,00,000

Total Tax: Rs 12,500 + Rs 1,00,000 = Rs 1,12,500

Health and Education Cess (4%): 4% of Rs 1,12,500 = Rs 4,500

Total Tax Liability (Old Regime):
Rs 1,12,500 + Rs 4,500 = Rs 1,17,000

New Tax Regime Calculation

Gross Income: Rs 15,00,000

Standard Deduction: Rs 75,000

Taxable Income:
Rs 15,00,000 - Rs 75,000 = Rs 14,25,000

Tax Calculation:

  • 0 - Rs 4 lakh: Nil
  • Rs 4 lakh - Rs 8 lakh: 5% of Rs 4 lakh = Rs 20,000
  • Rs 8 lakh - Rs 12 lakh: 10% of Rs 4 lakh = Rs 40,000
  • Rs 12 lakh - Rs 14.25 lakh: 15% of Rs 2.25 lakh = Rs 33,750

Total Tax: Rs 20,000 + Rs 40,000 + Rs 33,750 = Rs 93,750

Health and Education Cess (4%): 4% of Rs 93,750 = Rs 3,750

Total Tax Liability (New Regime):
Rs 93,750 + Rs 3,750 = Rs 97,500

Final Comparison

  • Old Tax Regime Liability: Rs 1,17,000
  • New Tax Regime Liability: Rs 97,500

Savings: Rs 1,17,000 - Rs 97,500 = Rs 19,500

Conclusion: For individuals earning Rs 15 lakh annually, the New Tax Regime is more beneficial, offering a tax saving of Rs 19,500 compared to the Old Tax Regime.

Are you confused on which tax regime to choose from or want to calculate your tax payable use Tax2win income tax calculator.

Filing your ITR timely and accurately is important to avoid any tax trouble, tax notice. File ITR with Tax2win.

Frequently Asked Questions

Q- What is the current income tax rebate limit under Section 87A?

The latest income tax rebate limit under Section 87A, after the Budget 2025, is ₹60,000.

This rebate is available for individuals with a total income of up to ₹12 lakh under the new tax regime. However, it's important to note that this rebate does not apply to income taxed at special rates, such as capital gains, lottery winnings, etc.

Q- Up to what income level does an individual not have to pay any income tax?

Under the proposed new tax regime, individual taxpayers will have no tax liability on a total income of up to ₹12 lakhs. This means that if your annual income is ₹12 lakhs or below, you will not be required to pay any income tax under this regime.

Q- How will a taxpayer who has an income of ₹12 lakh benefit from new rates?

Taxpayers earning ₹12 lakh annually will experience significant relief under the updated tax rates. Previously, they would have paid ₹83,200 in taxes. However, their tax liability will be reduced to zero with the revised rates.

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Kamal Murarka

Kamal Murarka
Director - Tax Research & Operations

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Kamal Murarka, a Chartered Accountant, is the Director- Tax Research & Operations at Tax2win. He has been with the company since its inception, contributing his expertise in national and international tax assignments. He is also a recognized speaker on tax-related topics, representing Tax2win at various industry forums. His deep knowledge and strategic insights have been crucial in shaping Tax2win’s approach to tax research, operations, and client solutions, driving the company’s continued success.