How to Save Tax for Salary above 15 Lakhs in India?

Navigating the complex taxation landscape in India can be daunting, especially when your annual income exceeds the 15 lakh rupee mark. As your earnings rise, so does your tax^* liability, making it crucial to employ effective tax-saving strategies.

In this informative article, we will talk about the saving tax for individuals with a salary exceeding ₹15 lakhs. From understanding the latest tax slabs and exemptions to exploring tax saving investments in India like PPF, ELSS, and NPS, we will provide you with actionable insights, tips and ways to save tax in India and further optimise your tax planning, ensuring your earnings stay where it belongs – in your pocket.
 

So, let us get started!

Tax Slabs Under the Old and New Tax Regime

While the old regime offers various deductions not present in the new system, it is important to note that the latter boasts lower tax rates. It is worth highlighting that the deductions discussed in this article are exclusive to the old regime.
 

Old Tax Regime
 

New Tax Regime

Now, prior to exploring any tax-savings option, gaining a clear understanding of your tax liability is paramount. The current tax regime places individuals with a salary of ₹15 lakhs in the 30% bracket.

Calculating income tax entails considering factors like the basic exemption limit, standard deduction, and the applicable tax rates for varying income brackets.

Tax Saving Provisions as Per the Indian Income Tax Act

Your salary has various components that are tax-exempt. The calculation of your net taxable income is derived through the following steps:
 

• Salary - Exemptions = Taxable Salary Income.
• Taxable Salary Income - Deductions = Net taxable income.
   

Therefore, if you fall within the above ₹15 lakh tax bracket, you have the opportunity to claim tax deductions and exemptions from the following sources:
 

Tax Exemptions

Tax Deductions

When devising your tax strategy for a salary exceeding ₹15 lakhs, deductions can be claimed for the following:
 

How to Save Tax for Salary Above 15 Lakhs

With higher earnings comes an increased tax liability, prompting the need for astute financial strategies. Here are a few of those which you need to keep in mind while saving tax on 15 lakh income:
 

• Understanding Tax Slabs and Exemptions

  Before delving into tax-saving avenues, it is imperative to understand the tax structure and the tax deduction on salary above 15 lakhs. Individuals with a salary above 15 lakhs fall into the 30% tax bracket (both old and new tax regimes).
  The calculation involves deducting exemptions from the total salary to arrive at taxable income. This understanding forms the foundation for effective tax planning.
   

• Opting for the Right Tax Regime

  Choosing between the old and new tax regimes is a crucial decision. The old regime offers deductions that are absent in the new one, but the latter boasts lower tax rates. Individuals must evaluate their financial situation to determine which regime aligns better with their interests.
   

• Leveraging Exemptions

  Salary structures often contain components that are exempted from taxation. Understanding and maximising these exemptions is a fundamental aspect of tax planning. Components like House Rent Allowance (HRA), Leave Travel Allowance (LTA), and certain reimbursements can significantly reduce taxable income.
   

• Utilising Deductions

  Deductions play a pivotal role in tax planning. They serve as a means to reduce taxable income and, consequently, the overall tax liability. Under the old regime, deductions are available for various expenses like tuition fees, home loan interest, and contributions to provident funds.
   

• Investing in Provident Funds (PF)

  For individuals with salaries above 15 lakhs, investing in provident funds can be a strategic move. Contributions to the Employee Provident Fund (EPF) and Public Provident Fund (PPF) help build a retirement corpus and offer tax benefits. The interest earned on these funds is tax-free.
   

• Exploring Equity-Linked Savings Schemes (ELSS)

  ELSS is a tax-saving mutual fund that invests primarily in equities². It offers the dual benefit of potentially high returns and tax savings under Section 80C of the Income Tax Act. With a lock-in period of just three years, ELSS provides flexibility compared to other tax-saving options.
   

• National Pension System (NPS)

  The National Pension System is an attractive option for long-term tax planning. Contributions to NPS are eligible for deductions under Section 80CCD(1B), which is over and above the 80C limit. Additionally, it offers a well-structured retirement savings avenue.
   

• Maximising Health Insurance Benefits

  Investing in a comprehensive health insurance policy not only provides financial security but also offers tax benefits. Premiums paid towards health insurance for self, family, and parents are eligible for deductions under Section 80D.
   

• Consideration of Long-term Capital Gains

  Understanding the tax implications of long-term capital gains is crucial for individuals with substantial investments in equities and real estate. Strategies like tax-loss harvesting and investing in tax-saving bonds can help mitigate the tax impact.

Conclusion

In the Indian taxation system, a salary above 15 lakhs demands a nuanced approach. Understanding tax slabs, leveraging exemptions, and judiciously choosing between regimes form the bedrock of efficient planning. Exploring investment avenues like PF, ELSS, and NPS under Section 80C can significantly bolster savings.

Additionally, maximising deductions and considering long-term capital gains strategies further fine-tuning the process. By employing these strategies, individuals can optimise their tax savings and secure their financial future.

With diligent planning and informed decisions, one can confidently navigate the complex tax landscape, ensuring every rupee is put to its best use.