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How to Save Tax for Salary above 50 Lakhs?

Discovering effective tax-saving strategies for incomes exceeding 50 lakhs necessitates a comprehensive approach. From leveraging exemptions to exploring tax-saving instruments like NPS and ELSS, informed decision-making is key. This blog is a handy guide to help you save on taxes!

"With great income comes great responsibility" - and this couldn't ring truer in the realm of personal finance. 
 

Congratulations on your professional success if your annual salary exceeds the 50 lakhs mark! 
 

However, with higher earnings comes a more complex tax landscape. Navigating this terrain with savvy strategies that help you keep more of your hard-earned money is crucial.
 

In this comprehensive blog, you will learn about the intricacies of tax for 50 lakhs in India and effective planning approaches for individuals with salaries above 50 lakhs. 
 

From understanding the nuances of tax brackets to exploring diverse investment avenues, this will provide you with a roadmap to optimise your tax liability while staying compliant with legal norms.

Deductions Under the Old Tax Regime

Before learning about the deductions, have a look at the tax brackets as per the old tax regime: 
 

Income Range

Tax Rate

Up to ₹2.5 lakhs

Nil

₹2.5 lakhs to ₹5 lakhs

5%

₹5 lakhs to ₹10 lakhs

20%

₹10 lakhs to ₹15 lakhs

30%

₹15 lakhs to ₹20 lakhs

30%

Above ₹20 lakhs

30%

 

The deductions that were included under the old tax regime are as follows: 
 

  • Standard deduction of ₹50,000

  • Deduction for investment in life insurance premium (Section 80C)

  • Deduction for investment in pension schemes (Section 80CCD(1) and Section 80CCD(1B))

  • Deduction for investment in public provident fund (Section 80C)

  • Deduction for investment in national saving certificate (Section 80C)

  • Deduction for investment in equity-linked savings schemes (Section 80C)

  • Deduction for interest on home loan (Section 80C)

  • Deduction for tuition fees for children's education (Section 80C)

  • Deduction for medical insurance premium (Section 80D)

  • Deduction for donation to certain charitable institutions (Section 80G)

  • Deduction for investment in infrastructure bonds (Section 80CCF)

  • Deduction for investment in a savings account in the post office (Section 80TTA)

  • Deduction for interest on savings account (Section 80TTA)

Deductions Under the New Tax Regime

The tax brackets under the new tax regime are given below: 
 

Income Range

Tax Rate

Up to ₹3 lakhs

Nil

₹3 lakhs to ₹6 lakhs

5%

₹6 lakhs to ₹9 lakhs

10%

₹9 lakhs to ₹12 lakhs

15%

₹12 lakhs to ₹15 lakhs

20%

Above ₹15 lakhs

30%

 

The new tax regime has fewer deductions as compared to the old one. Have a look at the deductions under the new tax regime below:  
 

  • Standard deduction of ₹50,000

  • Deduction for employer's contribution to NPS account [Section 80CCD(2)]

  • Deduction for additional employee cost (Section 80JJA)

  • Deduction for interest on a home loan on the let-out property (Section 24)

  • Deduction for family pension income (Section 57(iia))

  • Deduction for the amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Which Regime is Better?

Whether the new or old tax regime is better for you depends on your circumstances, such as your income level, investment patterns, and other deductions you are eligible for.
 

The new tax regime may be a better option if you have a low investment and are not eligible for many deductions. 
 

However, the old tax regime may be a better option if you have high investments and are eligible for many deductions.

How to Save on Income Tax Above 50 Lakhs Annual Salary?

 

 

Whether you're a seasoned professional or a rising star, the proven principles of investments discussed here can empower you to make informed financial decisions.
 

Make sure you understand these thoroughly in order to get the most benefits and save tax on 50 lakh salary effectively:
 

  • Explore Tax-Saving Avenues

    Diving into tax-saving instruments stands out as a highly efficient method for minimising your tax liability. According to section 80C of the Income Tax Act, 1961, you're eligible for deductions of up to ₹1.5 lakh by strategically allocating funds into a range of tax-saving avenues.

     

    Among the favoured options are the ever-reliable Public Provident Fund (PPF), the versatile National Pension System (NPS), the growth-oriented Equity-Linked Savings Scheme (ELSS), and the secure haven of tax-saving fixed deposits (FDs). 

     

    These instruments serve as effective tax shields and present opportunities for reasonable returns, ensuring your financial portfolio gains traction.

  • Optimise Section 80D Deductions

    Prioritising health insurance isn't just a prudent financial move but also a tax-savvy one. Section 80D of the Income Tax Act allows you to claim deductions on health insurance premiums paid for yourself, your spouse, children, and parents.

     

    For individuals below 60 years, the maximum deduction limit stands at ₹25,000, whereas senior citizens enjoy an elevated limit of ₹50,000. 

     

    This provision ensures your financial well-being and delivers a welcomed reduction in your tax liability, promoting both fiscal responsibility and security.

     

  • Maximise Home Loan Benefits 

    Owning a home comes with its financial benefits, especially regarding tax deductions. Sections 80C and 24(b) of the Income Tax Act offer avenues for claiming deductions on your home loan's principal and interest payments.

     

    For a self-occupied property, you're eligible for a deduction of up to ₹2 lakh on the interest paid annually. Additionally, under Section 80C, you can claim up to ₹1.5 lakh on the principal repayment.

     

    If you've chosen to rent out the property, you can avail the full interest paid on the home loan as a deduction from your rental income. This translates to tax savings on a 50 lakh income and places you on the path to owning a valuable asset. 

     

    So, investing in a home loan not only provides tax benefits but also facilitates the acquisition of a substantial asset.

     

  • Optimise House Rent Allowance (HRA) Benefits

    If you currently reside in a rented accommodation and receive HRA as a component of your salary, exploring exemptions available under Section 10(13A) is advantageous.

     

    The exemption is granted based on the least of the following three amounts:

    1. Actual HRA received,

    2. 50% of your salary (if residing in a metro city) or 40% (if in a non-metro city),

    3. Rent paid to exceed 10% of your salary.

    You can effectively lower your taxable income by actively paying rent and capitalising on HRA exemptions.

     

    It's important to note that the tax on a 50 lakh salary in India can vary depending on the deductions and exemptions one avail. Leveraging the provisions of the Income Tax Act can significantly mitigate one's tax liability, ensuring a more financially secure future.

     

  • Utilise Leave Travel Allowance (LTA)

    Leave Travel Allowance (LTA) is an additional tax-saving perk employers offer. It permits you to claim a deduction for expenses related to domestic travel for both yourself and your family. 

     

    This benefit can be availed twice within a four-year block, provided you furnish the relevant travel receipts for verification.

     

    It's important to note that LTA exclusively pertains to domestic travel and does not apply to international trips. Therefore, planning your domestic vacations can enable you to maximise the LTA benefit, resulting in substantial tax savings. 

     

    By capitalising on this provision, you not only get to enjoy memorable trips but also bolster your financial well-being.

     

  • Embrace the Perks of the National Pension System (NPS)

    For individuals with substantial incomes, the National Pension System (NPS) is a stellar choice for tax savings and retirement planning. Section 80CCD(1B) of the Income Tax Act grants an additional deduction of up to ₹50,000 for investments made in NPS.

     

    This scheme provides a tax-saving avenue and presents the advantage of compounding returns over an extended period. 

     

    By opting for NPS, you reduce your tax liability and lay a strong foundation for a financially secure and prosperous retirement.

     

  • Strategise Your Approach to Capital Gains

    When you've ventured into investments like stocks, mutual funds, or real estate, it's crucial to address potential capital gains taxes on your profits. 

     

    However, you can proactively manage your capital gains by considering tax-efficient alternatives like equity-linked savings schemes (ELSS), the National Pension System (NPS), or real estate. 

     

    These avenues facilitate deductions under Sections 80C and 80CCD and mitigate your capital gains tax liability. This thoughtful approach ensures you maximise your investments while optimising your tax position.

Tax Above 50 Lakhs - Planning Provisions 

For those with salaries over 50 lakhs, smart tax planning involves utilising exemptions and deductions allowed by the Income Tax Act. 
 

Understand your salary structure, accounting for tax-exempt allowances. Deduct these from your salary to find your taxable income. Then, apply further deductions to reach your net taxable income. 
 

This strategic use of exemptions and deductions maximises tax savings and effectively allows you to manage your tax liabilities within legal bounds.
 

Tax Exemptions

You can discern your salary components within the CTC, clearly outlined as follows:
 

Components of Salary

Taxability

Basic Salary

Entirely taxable

Dearness Allowance (DA)

Entirely taxable

House Rent Allowance (HRA)

Exempt up to a specified limit

Leave Travel Allowance (LTA)

Actual travel expenses exempt for 2 trips in 4 years under 10(5)

Reimbursement for Mobile/Internet

Exempt if primarily used for office purposes, with valid proofs/bills submitted

Child’s Education and Hostel Allowance

Up to ₹4800 per child (maximum 2 children)

Food Allowance

Up to ₹50 per meal (maximum 2 meals a day); Annual limit: ₹31,200 (50226 days * 12 months)

Standard Deduction

Fixed deduction of ₹50,000 (Applicable without restrictions)

Professional Tax

₹2,400 (Varies based on state regulations)

 

Tax Deductions

When strategising tax planning for an income surpassing 10 lakhs, you qualify for deductions on the following items:
 

Deductions 

Limits and Eligibility

Health Insurance Premium (Section 80D)

Self, spouse, and dependent children: ₹25,000 (₹ 50,000 if aged 60 and above)

Parents: ₹25,000 (₹50,000 if aged 60 and above)

Education Loan Interest (Section 80E)

Deductible interest for 8 years from the year of higher education loan repayment

Charity Donations (Section 80G)

Eligible amount: 50% or 100%

Tax-saving Investments (Section 80C)

Tax benefits up to ₹ 1,50,000 per year. Options include EPF, PPF, ELSS, home loan, NSC, and more.

Costs for Disabled Dependents (Section 80DD)

40% disability: ₹ 75,000

80% disability: ₹ 1,25,000

Home Loan Payments (Principal and Interest)

Principal: Up to ₹ 1.5 lakhs (Section 80C)

Interest: Up to ₹ 2 lakhs (Section 24b)

Life Insurance Maturity Amount (Tax Exempt)

Maturity proceeds tax exempt if 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 individuals with disability or disease)

 

Efficient tax-saving involves strategic investments in tax-saving instruments and a comprehensive understanding of various tax provisions to make informed decisions. 
 

Consulting a Chartered Accountant (CA) is highly recommended. They can provide expert guidance on the array of tax-saving options available and assist you in optimising the use of tax provisions. 
 

A tax expert is invaluable in helping you plan your investments and ultimately reducing your tax liability.

To Summarise

Navigating the tax landscape for incomes above 50 lakhs requires careful planning and astute decision-making. Leveraging exemptions, deductions, and tax-saving instruments can significantly lighten the tax burden. 
 

Remember, effective tax planning ensures compliance with legal norms and paves the way for a more secure and prosperous financial future. By implementing these strategies, you can confidently stride towards a fiscally empowered tomorrow.

Want to Keep More of Your Hard-Earned Money? Speak to out expert

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

FAQs

How can I make the most of tax-saving instruments for my income above 50 lakhs?

Effective tax planning starts with understanding your salary components, utilising exemptions like HRA and LTA, and investing in tax-saving options such as NPS and ELSS. Consulting a Chartered Accountant for personalised guidance is highly recommended.

Can I claim deductions for both home loan interest and principal payments?

Yes, you can. Under Section 80C, you can claim a deduction of up to ₹1.5 lakhs on the principal repayment; under Section 24b, you can claim up to ₹2 lakhs on the interest paid for a self-occupied property. This allows you to optimise your tax savings while investing in a valuable asset.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  •  Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.