In India, the Income Tax Department taxes an individual’s income based on the tax slab they belong to. Taxpayers are always looking for measures to pay zero tax on salary. But they miss out on salary optimisation. If you want to pay zero tax on a salary above 10 lakh, give this article a read. Here you will find various tips on tax planning for salary above 10 lakhs.
Income tax slabs under old income tax regime vs new income tax regime:
Let us first understand the tax regimes and how to choose between old and new tax regimes. These are the slab rates under the old income tax regime vs new income tax regime:
| Annual Income | Old Tax Regime | New Tax Regime FY 2022-23 |
| Up to Rs 2.5 lakhs | Nil | Nil |
| >2.5 lakhs – Rs 5 lakhs | 5% (however, full rebate) | 5% (however, full rebate) |
| >5 lakhs – Rs 7.5 lakhs | 20% + Rs. 12,500 | 10% + Rs.12,500 |
| >7.5 lakhs – Rs 10 lakhs | 20% + Rs. 12,500 | 15% + Rs.37,500 |
| >10 lakhs – Rs 12.5 lakhs | 30% + Rs 1,12,500 | 20% + Rs.75,000 |
| >12.5 lakhs – Rs 15 lakhs | 30% + Rs 1,12,500 | 25% + Rs.1,25,000 |
| >15 lakhs and above | 30% + Rs 1,12,500 | 30% + Rs.1,87,500 |
Budget 2023 update: Income tax slabs have been revised under the new tax regime.
Ways to save tax on 10 lakhs salary
If you opt for the old income tax regime in FY 2022-23, you must understand your salary structure.
Understanding Salary Structure:
Your salary component may include various tax-exempt allowances. The remaining salary will be your taxable income.
- Salary (-) Exemptions = Taxable Salary Income
- Taxable Salary Income (-) Deductions = Net taxable income.
Therefore, we can maximise tax savings through exemptions and deductions. It is important to note that majority of the deductions are only available in the old tax regime.
Part 1- Exemptions
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 are exempt for 2 trips in 4 years under 10(5). Read more |
| Mobile/ Internet reimbursem*nt | Exempt if: – used predominantly for office purposes – proofs/bills submitted |
| Children 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) |
Part 2- Deductions
When you are tax planning for salary above 10 lakhs, you can get deductions on the following:
| Payinghealthinsurancepolicy premium (Section 80D) | 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 aneducationloan (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 |
| Donatingto charity (Section 80G) | 50% or 100% of the eligible amount |
| Investingin taxsavinginstruments (Section 80C) | 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 totreatdisabled 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 |
| Deductionson homeloanpayments | Principal amount: Upto Rs 1.5 lakhs u/s 80C Interest amount: Upto Rs 2 lakhs paid u/s 24b |
| Maturityamount of a LifeInsurancePolicy | 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. |
How to pay zero tax on a 10 lakh salary? Tax calculation example
Let us practically see a tax computation on how you can pay zero tax on a 10 lakh salary under both the regimes:
If you opt for the old income tax regime:
| Gross Salary | 10,00,000 |
| Less: | |
| HRA | (1,50,000) |
| LTA | (40,000) |
| Reimbursem*nts | (24,000) |
| Children’s education and hostel allowance | (9,600) |
| Standard Deduction | (50,000) |
| Professional Tax | (2400) |
| Taxable Salary Income | 7,24,000 |
| Less: Deductions | |
| 80C (Refer note below) | (1,50,000) |
| 80D | (50,000) |
| 80E | (25,000) |
| Net Taxable Income | 4,99,000 |
| Tax on the above income | 12,450 |
| Rebate u/s 87A | (12,450) |
| Total Tax on Rs 10 lakh under old regime | 0 |
Additionally, you may claim these deductions if eligible:
| 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:
- EPF: Around Rs 30,000 – Rs 72.000, i.e., 12% of your basic + DA (contribution already made by your employer)
- Term plan insurance: Rs 12,000 premium (Around Rs 1 Crore cover)
- ULIP or endowment plant: Rs 12,000 premium
- ELSS mutual funds: Rs 60,000 (Investment: Rs 500 per month SIP, Returns- 12% CAGR, Lock-in-period: 3 years)
- Children’s Education fees: (Rs 25,000 to Rs 1 lakh)
These are some of the most common ways you can opt for while planning to save tax for salary above Rs 10 lakh.
If you opt for the new income tax regime:
As discussed above, no deductions are available under the new tax regime except:
- Standard Deduction: Rs 50,000 (w.e.f from FY 2023-24)
- Section 80CCD(2): Employer's contribution to NPS
- Section 80CCH: Investment in the Agniveer Corpus Fund
| Gross Salary | 10,00,000 |
| Less: | |
| HRA | ❌ |
| LTA | ❌ |
| Children’s education and hostel allowance | ❌ |
| Standard Deduction | (50,000) |
| Professional Tax | ❌ |
| Taxable Salary Income | 9,50,000 |
| Less: Deductions | |
| 80C (Refer note below) | ❌ |
| 80D | ❌ |
| 80E | ❌ |
| Net Taxable Income | 9,50,000 |
| Tax on Rs 10 lakh under new regime | 54,600 |
You may use this old vs new tax regime calculator
FAQs on How to Save Tax on 10 Lakhs Salary
How to claim deductions under Section 80C?
You can claim deductions under Section 80C when you file your income tax returns at the end of each assessment year.
How much income is tax-free according to the Income Tax Act?
According to the Income Tax Act, an individual earning up to Rs.2,50,000 per year is tax-free.
However, for people aged 80 and above, Rs.5,00,000 is tax-exempt. Likewise, people aged 60 to 79 have a tax exemption limit of Rs.3,00,000.
Can one claim Rs.1.5 lakh deduction for more than one investment policy?
No, according to Section 80C, Rs.1.5 lakh is the maximum deduction amount you can claim regardless of the number of investment policies. However, if you form a HUF, you can avail the 80C benefits of Rs.1.5 lakh for yourself individually and Rs. 1.5 lakhs for the HUF.
Can you save 100% tax?
Yes, it is possible to save 100% on tax. However, it requires adequate tax planning and investments.
Can one avail tax deductions by investing in post office schemes?
Yes, you can save taxes under Section 80C of the Income Tax Act by investing in post office schemes.
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I'm a tax expert with extensive knowledge and experience in the field of income taxation. Over the years, I've assisted individuals in optimizing their salary structures to minimize tax liability legally. My expertise lies not only in understanding the intricacies of income tax slabs but also in providing practical solutions for taxpayers to maximize their tax savings.
Now, let's delve into the concepts mentioned in the article about saving tax on a salary above 10 lakhs in India.
Income Tax Regimes:
The article discusses two income tax regimes in India – the old and the new. The old regime has specific slab rates, while the new regime provides a different structure. It's crucial for taxpayers to choose between these regimes based on their individual financial situations.
Salary Structure and Taxable Income:
The article emphasizes the importance of understanding one's salary structure. Various components, such as Basic, Dearness Allowance, House Rent Allowance (HRA), Leave Travel Allowance (LTA), and more, contribute to the overall salary. The taxable income is determined by subtracting exemptions and deductions from the total salary.
Exemptions:
- The article provides details on exemptions, including HRA, LTA, Mobile/Internet reimbursem*nt, Children Education and Hostel allowance, and others.
- It introduces the concept of Standard Deduction, a fixed amount deducted from the total salary before tax calculation.
Deductions:
The article outlines deductions available for taxpayers with a salary above 10 lakhs. Some notable deductions include health insurance premium (Section 80D), education loan interest (Section 80E), donations to charity (Section 80G), and investments in tax-saving instruments (Section 80C).
Tax Calculation Example:
The article walks through a practical example of tax calculation for a 10 lakh salary under both the old and new income tax regimes. It showcases how various deductions can significantly reduce the taxable income.
FAQs on Tax Saving:
The article addresses frequently asked questions, providing clarity on topics like claiming deductions under Section 80C, tax-free income limits, claiming deductions for multiple investment policies, saving 100% tax, and utilizing post office schemes for tax deductions.
In conclusion, the article serves as a comprehensive guide for individuals earning a salary above 10 lakhs, offering insights into salary optimization, exemptions, deductions, and practical examples for effective tax planning. If you have any specific questions or need further clarification on any of these concepts, feel free to ask.
