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How to Save Tax for Salary Above 7 Lakhs?

If you earn an annual income of ₹7 lakhs and wish to save on your taxes, you should be aware of the old and new tax regimes as per Budget 2023-24. This blog discusses everything you should know if you wish to pay NO TAX with an annual income of ₹7 lakhs.
 

Save Tax

Are you earning above 7 lakhs annually and looking for effective ways to optimise your tax liabilities? Navigating the realm of tax-saving strategies can be daunting, but with the right knowledge, you can significantly reduce your taxable income. 
 

In this blog, you will learn about a range of actionable tips and financial instruments tailored for individuals with a salary exceeding 7 lakhs. So, can you enjoy no income tax upto 7 lakhs of salary? We will see in this blog.
 

From prudent investments to smart deductions, this blog will help you make informed decisions to maximise your savings while complying with tax regulations. 
 

So, why wait? Let's embark on this journey towards a more financially secure future.

Changes in the Tax Paying Regime As Per the New Tax Regime

The fiscal year 2023-24 witnessed significant tax reforms with the introduction of a tax rebate for incomes up to ₹7 lakhs under the new regime. This translates to complete tax exemption for individuals earning below ₹7 lakhs who opt for this new system. 
 

In contrast to the prior scenario with no exemptions or deductions, the FY 2023-24 Budget has now unveiled a range of exemptions and deductions for those adhering to this fresh tax framework.

Tax on 7 lakh Income Annually as per the Old Tax Regime

The old tax regime is the tax system that was in place before the 2023-24 budget. It has 5 tax slabs, and the rates are as follows:
 

Income

Taxability

Up to ₹2.5 lakh

Nil tax

Between ₹2.5 lakh and ₹5 lakh

5% tax

Between ₹5 lakh and ₹10 lakh

20% tax

Between ₹10 lakh and ₹15 lakh

30% tax

Above ₹15 lakh

30% tax

 

For a salary of ₹7 lakh, the following is the tax calculation under the old tax regime:

  • Taxable income = ₹7 lakh - ₹2.5 lakh (standard deduction) = ₹4.5 lakh

  • Tax payable = ₹4.5 lakh x 5% = ₹22,500

Tax-Free Earnings on a 7 Lakh Salary

If your annual income stands at ₹7 lakh, choosing the new regime proves advantageous due to the introduced tax rebate. 
 

Alternatively, adhering to the old tax regime would necessitate investments for deductions and exemptions. 
 

Let's examine an illustrative example under both tax structures:

Tax Rebate in Old Tax Regime

  • Gross Salary: ₹7,50,000

  • House Rent Allowance: ₹50,000

  • Standard Deduction: ₹50,000

  • 80C, 80CCC, 80CCD (1): ₹1,50,000
     

Total Exemption and Deductions: ₹2,50,000

Net Taxable Income: ₹5,00,000
 

Tax Calculation:

  • Up to ₹2,50,000: Nil

  • ₹2,50,001 to ₹5,00,000 (5%): ₹12,500

  • ₹5,00,001 to ₹10,00,000 (20%): Nil

  • Above ₹10,00,000 (30%): Nil
     

Total Tax: ₹12,500

Tax Rebate: ₹12,500 

Net Tax Payable: ₹0 
 

Choosing the old tax regime enables you to avail tax deductions and exemptions under various sections of the Income Tax Act, such as Section 80C, Section 80D and more:

  • Section 80C: Exemption of up to ₹1.5 lakh on investments in pension funds, mutual funds, ULIPs, government savings schemes, life insurance premiums, home loan principal amount, education fees, etc.

  • Section 80CCD: Additional exemption of ₹50,000 for investments in the National Pension Scheme.

  • Section 80D: Tax deduction on health insurance premium payments for self or parents.

  • 80TTA: Deduction on savings account interest.

  • 80G: Deductions for donations to charitable organisations.

  • Other tax benefits: This encompasses House Rent Allowance, Professional Tax, Relocation Allowance, Leave Travel Allowance, Mobile Reimbursement, etc.
     

Tax Rebate in New Tax Regime

  • Gross Salary: ₹7,50,000

  • Standard Deduction: ₹50,000

  • Total Exemption: ₹50,000 

  • Total Deduction: Nil

  • Net Taxable Income: ₹7,00,000
     

Tax Calculation:

  • Income up to ₹3,00,000: Nil

  • ₹3,00,001 to ₹6,00,000 (5%): ₹15,000

  • ₹6,00,001 to ₹9,00,000 (10%): ₹10,000

  • ₹9,00,001 to ₹12,00,000 (15%): Nil

  • ₹12,00,001 to ₹15,00,000 (20%): Nil

  • Above ₹15,00,000 (30%): Nil
     

Total Tax: ₹25,000

Tax Rebate: ₹25,000 

Net Tax Payable: ₹0
 

While you can leverage various exemptions and deductions in the old tax regime, the new tax regime offers a balance through the Tax Rebate under Section 87A.
 

Notably, the tax rebate limit under Section 87A has been raised from FY 2023-24. By choosing the new tax regime, you qualify for a tax rebate of ₹25,000 on income up to ₹7 lakh, compared to the previous ₹12,500 for income up to ₹5 lakh in the old tax regime.
 

In addition to the standard deduction in the new tax regime, you can also claim these deductions:
 

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

  • Section 80CCH: Investment in the Agniveer Corpus Fund

How to Pay NO Income Tax on 7 lakhs Salary?

Here are some ways you can pay no tax with an annual income of 7 lakhs:
 

  • Choose the new tax regime: The new tax regime introduced in the 2023-24 budget has a tax rebate of Rs. 25,000 for income up to Rs. 7 lakh. This means that if you choose the new tax regime, you will not have to pay any tax at all on a salary of Rs. 7 lakh.

  • Claim all eligible deductions and exemptions: There are a number of deductions and exemptions that you can claim under the Income Tax Act. These can help you reduce your taxable income. Some of the most common deductions and exemptions include:
     

    • Standard deduction: Rs. 50,000

    • Section 80C deductions: Up to Rs. 1.5 lakh

    • Contributions to pension funds, mutual funds, insurance policies, etc.

    • Section 80CCD(1B) deduction: Rs. 50,000

    • Contributions to the National Pension Scheme

    • Section 80D deduction: Up to Rs. 25,000

    • Medical insurance premiums

    • Section 80TTA deduction: Up to Rs. 10,000

    • Interest on savings account

    • Section 80U deduction: Up to Rs. 75,000

    • Disability deduction
       

  • Invest in tax-saving schemes: There are a number of tax-saving schemes that you can invest in. These schemes offer deductions under the Income Tax Act, which can help you reduce your taxable income. Some of the most popular tax-saving schemes include:

    • Public Provident Fund (PPF)

    • Employees' Provident Fund (EPF)

    • National Pension Scheme (NPS)

    • Sukanya Samriddhi Yojana

    • Tax-saving mutual funds

    • Tax-saving insurance policies
       

  • Make sure you are filing your tax returns correctly: If you are claiming deductions and exemptions, it is important to make sure that you are filing your tax returns correctly. You should consult with a tax advisor to ensure that you are doing everything correctly.

Conclusion

In navigating the intricacies of tax-saving strategies for salaries above 7 lakhs, the choice between old and new regimes looms significant. The detailed examples illustrate the potential benefits and considerations each option entails. 
 

While the old regime offers a plethora of exemptions and deductions, the new regime presents simplicity and a generous tax rebate. 
 

Ultimately, the decision rests on individual financial circumstances and preferences. It's crucial to evaluate investments, deductions, and long-term goals. Whichever path you choose, this guide equips you with the knowledge to make informed financial decisions, ensuring a secure and prosperous fiscal future.

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!

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FAQs

What is the Agniveer Corpus Fund under the Agnipath scheme?

The Agniveer Corpus Fund is a savings fund that is created for Agniveers under the Agnipath scheme. Agniveers (or soldiers inducted under the Agnipath scheme) contribute 30% of their monthly salary to this fund, and the government matches this contribution. The money in this fund is invested in safe and secure government securities, and Agniveers can access it after completing their four-year service in the armed forces.

What are the eligible deductions under Section 80E of the Indian Income Tax Act?

Under Section 80E of the Income Tax Act, the taxpayer can claim a deduction on the interest payments on loans taken for higher education.

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  • 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.

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