How to Save Tax for Salary Above 10 Lakhs?

As the financial year comes to a close, many individuals find themselves grappling with the inevitable task of filing taxes^*. If you are earning above ₹10 lakhs, navigating the income tax on 10 lakhs landscape can be particularly complex. 
 

The good news is that with the right knowledge and strategies, you can significantly reduce your tax liability while staying within legal boundaries. 
 

In this comprehensive blog, we will take you through the intricacies of tax planning for high-income earners. From smart investments to lesser-known deductions, we will equip you with the tools to optimise your financial portfolio and ensure you keep more of your hard-earned money.
 

But first, let us check out the income tax slabs per the old and new tax regimes to understand your tax liabilities better.

Tax Slabs as per the Old and the New Tax Regime

The new income tax regime offers a higher tax rebate limit of ₹7 lakhs, compared to ₹5 lakhs under the old regime. This means that taxpayers with an income of up to ₹7 lakhs will not have to pay any tax under the new regime.

Let us learn it better in the tables below:
 

Old Tax Regime

New Tax Regime

The new income tax regime also has a simpler structure with fewer slabs, which makes it easier for taxpayers to calculate their tax liability. 
 

However, the new regime does not allow taxpayers to claim certain deductions and exemptions available under the old regime.

Maximising Savings on Income Tax Above 10 Lakhs Salary

To effectively reduce your tax on 10 lakh income, it is crucial to have a solid grasp of your salary structure. 
 

A salary encompasses various components that may qualify for grants and tax exemptions. The portion of your salary remaining subject to taxation after accounting for these exemptions is called Taxable Income. 
 

This figure is estimated by subtracting the tax-exempt benefits from your total salary.
 

Therefore,

Salary - Exemptions = Taxable Salary Income

Further, after accounting for deductions, you arrive at your Net Taxable Income:

Taxable Salary Income - Deductions = Net Taxable Income
 

By strategically maximising your exemptions and leveraging tax deductions, you can effectively alleviate your overall burden on income tax for 10 lakhs per annum.

Income Tax-Eligible Salary Exemptions

The salary components qualifying for tax exemptions include:
 

10 Lakh Income Tax-Saving Deductions 

When aiming to optimise tax savings on salaries surpassing ₹10 lakhs, it is crucial to recognise the various compensation components eligible for tax deductions. 
 

These deductions play a pivotal role in efficient tax planning for incomes exceeding ₹10 lakhs. Key components to consider include:
 

How to Save Tax on 10 Lakh Salary – Ways to Pay NO TAX!

It is possible to pay zero tax on a ₹10 lakhs salary under the old income tax regime. 

Here are some of the deductions and exemptions that you can claim to reduce your taxable income:
 

• Standard deduction of ₹50,000.

• Deduction under Section 80C of up to ₹1,50,000 for investments made in certain eligible instruments, such as:

  • Life Insurance Premium

  • Provident Fund

  • National Savings Certificate

  • Equity-Linked Savings Scheme (ELSS)

  • Public Provident Fund (PPF)
     

• Deduction under Section 80D of up to ₹25,000 for medical insurance premiums paid for self, spouse, and dependent children.

• Deduction under Section 80TTA of up to ₹10,000 for interest paid on savings account.

• Deduction under Section 80EE of up to ₹50,000 for interest paid on home loans for first-time home buyers.

• Deduction for LTA (Leave Travel Allowance) of ₹40,000.

• Deduction for HRA (House Rent Allowance) of ₹1,50,000.

• Deduction for any reimbursements of ₹24,000.
   

If you claim the above deductions and exemptions, your taxable income will be reduced to ₹1 lakh. In this case, you will not have to pay any tax.
 

Here is an example of how the tax liability would be calculated for a taxpayer with a salary of ₹10 lakh:

So, as per the old tax regime, you will not have to pay any taxes! 
 

However, if you opt for the new income tax regime, you cannot claim most of the deductions and exemptions available under the old regime. 
 

The only deductions that are available under the new regime are:
 

• Standard deduction of ₹50,000.

• Employer's contribution to NPS under Section 80CCD (2).

• Investment in the Agniveer Corpus Fund under Section 80CCH.
   

If you have claimed any other deductions and exemptions under the old regime, you cannot claim them under the new regime. Your taxable income will increase under the new regime, and you may have to pay more tax.
 

However, the new income tax regime does have a higher tax rebate limit of ₹7 lakh, compared to ₹5 lakh under the old regime. This means that taxpayers with an income of up to ₹7 lakh will not have to pay any tax under the new regime.

Conclusion

For individuals earning above ₹10 lakhs, opting for the old tax system and making full use of available deductions and exemptions through tax-saving investments proves to be the most effective approach in minimising tax liability. 
 

On the other hand, choosing the new tax system allows for simplified filing, but it comes at the cost of forfeiting any carried-forward losses or deductions from tax-saving investments. 
 

Therefore, it is crucial to thoroughly assess all aspects of your income before making a decision.