How much income tax can be saved if your annual income is above 10 lakhs

There are quite a few ways through which an Indian taxpayer might optimise their incomes, exemptions and deductions to ensure the least possible tax liability. A person who is liable to pay tax needs to be on top of tax planning. Tax planning for example can be when the person earning salary income above 10 lakhs cultivates various methods through which they can achieve a zero tax liability or as close to a zero tax liability as possible. This article aims to illustrate the same.

As per a recent update, under Section 115BAC the new default regime, up to ₹ 25,000 rebate under Section 87A is allowable on income less than ₹ 7,00,000. Furthermore, the lowest slab rate has been increased from ₹ 2,50,000 to ₹ 3,00,000 under the new regime which is now the default tax regime. Therefore, if an individual wants to opt for the old regime slab rates, they have to opt out of the new regime as it is now the default system.

New Regime and Old Regime

Let us explore the slab rates available to a resident individual earning a salary income.

Exemptions and Deductions under New Tax Regime

The new tax regime has a limited number of deductions that can be availed by the taxpayers. The following deductions are allowed under the new tax regime:

• The Standard Deduction of ₹ 50,000 can be availed by individuals under the salary head of income.
• Transport allowance for specially-abled persons is allowable.
• Conveyance allowance for meeting the expenditure incurred for employment is allowable.
• Compensation received to meet costs of travel on tour or during transfer.
• Section 24 deduction of interest on home loan for a let-out property is available in House Property head of income.
• Section 57(iia) deduction under the head Income from other Sources on the family pension received.
• Section 80CCD(2) deduction on Employer’s contribution to the national pension scheme. This deduction is limited to ₹ 50,000.
• Section 80CCH deduction on the contribution made to the Agniveer Corpus.
• Exemption under 10(10C) Voluntary Retirement scheme.
• Exemption under 10(10) Gratuity.
• 10(10AA) Leave Encashment Exemption.
• Section 10(10D) Life Insurance Policy Maturity amounts are tax exempt if the sum assured is less than or equal to:

1. 20% of the premium on policies issued before 1st April 2012.
2. 10% of the premium on policies issued from 1st April 2012.
3. 15% of the premium on policies issued from 1st April 201 for persons with disability or disease.
4. For ULIPs (from April 2021)- exemption is available only if the annual premium does not exceed ₹ 2,50,000.
5. For Life Insurance Policies other than ULIPs (from 1st April 2023)- exemption is available only if the premium does not exceed ₹ 5,00,000.

Exemptions and Deductions under the Old Tax Regime

House Rent Allowance

An individual may avail of this if they are renting accommodation in the location of employment and have valid rent proofs. HRA benefit cannot be claimed if an individual owns their own house or lives with their parents, renting is a must. The amount of HRA exemption is the least of the following:

• Actual HRA received
• Actual Rent paid less than 10% of the Basic Salary
• 50% of Basic Salary received (in metro)

For other than metro cities, 40% of the Basic Salary received is to be taken.

Section 80GG

If employees are paying rent but not receiving House Rent Allowance from their employers a deduction under this Section can be explored. A salaried or self-employed individual or HUF not receiving any HRA benefits can avail of Section 80GG. Therefore, only one can be availed. Either HRA under Salary head or Section 80GG. The least of the following can be availed:

• ₹ 60,000 per year (₹ 5,000 per month)
• Total rent - 10% of the total income
• 25% of the annual salary

Leave Travel Allowance

This allowance is for employees to travel to any place in India while on leave or after retirement or termination. The amount of exemption is available only on actual travel costs that are incurred by the employee. Here is a detailed breakdown of this allowance.

Mobile/Internet reimbursement

Exemption is only allowed if the mobile or internet has been primarily used for office purposes. The requisite proofs/bills are to be submitted.

Children’s Education and Hostel Allowance

A deduction of ₹ 4,800 per child for a maximum of 2 children is allowable. ₹ 100 per month for 12 months is the maximum children’s education allowance and ₹ 300 per month for 12 months is the maximum children’s hostel allowance that can be availed.

Food Coupons

A deduction of ₹ 50 per meal for a maximum of 2 meals a day. Taking 22 working days and 2 meals a day, the yearly exemption shall work out to be ₹ 26,400 (2*22*12)

Books and Periodicals

An employee is allowed to claim an exemption for the purchase of books, newspapers, journals etc. The exemption is to be lower of, the amount incurred or the amount provided as allowance for this in the salary package.

Relocation expenses

When the employee is relocating to another location due to their job and the employer provides reimbursement or allowance for the following, the same can be claimed while computing tax liability:

• Packaging and transportation of personal belongings.
• Cost of travel to the new location(eg: train/air tickets) and daily expenses incurred during it.
• Any accommodation for the initial 15 days of relocation including the boarding lodging and the meals forming part of the expenses.
• Car transportation and registration charges.

Valid proofs of the above must be kept by the taxpayer.

Professional Tax

Usually of ₹ 2,400 is allowed. This amount varies from state to state.

Section 24

While the principal portion is allowable as a deduction under Section 80C the interest portion can be claimed as a deduction in the House Property head of income. An amount of up to ₹ 2 lakh can be claimed if the property is being occupied by the taxpayer. For interest on home loans incurred on let-out properties, the entire amount can be claimed as a deduction. The latter portion is available in the new regime, while the former, for the self-occupied property, is not allowed under the new regime. While both are allowed under the old regime.

Section 80EEA

A deduction of up to ₹ 1.5 lakh is available on the interest on loan for first-time home buyers of stamp duty value not exceeding ₹ 45 lakh. The home loan should have been sanctioned between 01.04.2019 and 31.03.2022. The loan must be taken from a housing finance company or recognized financial institution.

Section 57

Deduction of up to 20% on any interest paid on loan taken to earn dividend income. A salaried individual should have a well-rounded portfolio of investments and deduction from dividend income can be claimed when a loan is taken to earn such dividend or income from units of mutual funds.

Section 80C

This Section provides a deduction on various investments and expenditures. An amount of ₹ 1,50,000 is allowed along with Section 80CC which allows deductions for payments made to pension schemes. 80C allowable include:

• Investment in ELSS(Equity Linked Saving Schemes) Mutual Funds
• Payments made towards Life Insurance Premiums
• Stamp duty and principal portion of any home loans taken and repaid
• EPF/PPF/RPF investments
• Payments made to Sukanya Smriddhi Yojana, National Savings Certificate
• Fixed Deposit for 5 years

Section 80CCD(1B)

An additional ₹50,000 deduction is available on investments in the National Pension Scheme(NPS) over and above the 80C and 80CCC deduction of ₹1,50,000. With careful planning, an individual can plan their tax savings and take advantage of up to ₹2,00,000 in tax deductions from these sections alone!

Section 80D

A deduction of ₹25,000 is available on payment of Medical Insurance for Self, Spouse and any dependent Children. If the individual is aged above 60 then the deduction is ₹50,000. An additional ₹25,000 is available for Medical Insurance Payments made for Parents. If the parents are above 60 years of age then ₹50,000 is the additional deduction available. Here are the deduction limits:

• For Individual and Family Coverage: (Self, Spouse and Dependent Children)

1. Individuals below 60 years: Up to ₹ 25,000.
2. Individuals aged 60 years and above (senior citizens): Up to ₹ 50,000.

• For Policies Covering Parents (in addition to individual and family coverage):

1. Individuals below 60 years with parents below 60 years: Up to ₹ 25,000.
2. Individuals below 60 years with parents aged 60 years and above (senior citizens): Up to ₹ 50,000.
3. Individuals aged 60 years and above with parents: Up to ₹ 1,00,000.

Section 80DD

Section 80DD is a deduction for persons who have dependents with disabilities. This deduction is a relief for medical expenses incurred by the taxpayer. If the disability is more than 40% a deduction of ₹ 75,000 is available and for severe disabilities of more than 80%, a deduction of ₹ 1.25 lakh is available.

Section 80DDB

Section 80DDB provides for a deduction to Individuals and HUFs for medical expenses incurred for the treatment of specified diseases or ailments. Such expense is allowed as a deduction when actually incurred on self or a dependent family member. For individuals, it is ₹ 40,000. For Senior and Super Senior Citizens this limit is ₹ 1,00,000.

Section 80U

Section 80U is a deduction of ₹ 75,000 when the disability is more than 40% and ₹ 1.25 lakh for a severe disability, more than 80% available when maintenance expenses incurred including treatment for the disabled taxpayer, ie incurred on self.

Section 80E

Section 80E is the deduction available on payment of interest education loan taken for higher education. There is no limit on the deduction, but it can be availed for a maximum period of 8 years.

Section 80G

Deduction is available for any donations made to charitable institutions. Donation can be 50% or 100%. Read more on this section here.

Section 80TTA

A deduction of a maximum ₹ 10,000 is available on interest earned from the Saving Bank account in a bank, co-operative society or post office. This deduction is not for interest earned from fixed deposits or recurring deposits.

An example of how to save tax if salary income above 10 lakhs

Mr X has a salary of ₹ 12,00,000, HRA of ₹ 1,75,000, LTA of ₹ 50,000, Children’s Education and hostel allowance for 2 and Professional Tax of ₹ 2,400. He is contributing ₹ 2,00,000 for PPF and pays a Medical Insurance Premium of ₹ 50,000, an amount of ₹ 75,000 was paid as interest on the loan taken for his education and ₹ 50,000 interest on the loan taken under Section 80EEA. Tax calculation under both the regimes of tax:

Therefore, a salaried individual has a lot of scope where they can tax plan and reduce their tax payable as much as possible. Various tax-saving investments under 80C, Life Insurance Premiums, Charitable Donations etc can be made by them. Ultimately it’s a matter of good research and timely planning.

Click here to know how to Save Tax if Salary is Above 5 Lakhs