How to Save Tax if Salary is Above 5 Lakhs for FY 23-24?

Introduction

As the due dates are not so far to file your Income Tax returns for the FY 23-24, as an individual taxpayer one cannot contribute that much in form of taxes on their earnings. Hence government has provided various Tax benefits, Exemptions, Deductions & reliefs to an individual taxpayer in order to reduce their Tax liability. Let's understand some of the ways to reduce your Tax liability.

Latest Amendment made under Finance Act 2023

As New Tax Slabs are introduced us 115BAC. Accordingly, now the basic exemption limit is Rs. 3,00,000. Also Rebate under Section 87A is made applicable on Income up to Rs 7,00,000. Thus, if you opt for the New Tax Regime, those Individuals having Income less than Rs. 7,00,000 will have to pay Zero Tax Liability.

Old regime Vs New Regime

Tax Slabs:

As a taxpayer it is important to know about the exemptions & deductions available for the taxation purpose let's check out some standard exemptions & deductions allowed under both regimes

Exemptions & Deductions allowed under new regime

Unlike the Old tax regime, the new tax regime has minimal scope for claiming deductions or exemptions. Deductions that are available in the new tax regime are as follows.

Rebate us 87A under both regimes

Conditions to claim:

• Only Resident Individual can claim
• Senior citizens above 60 years and up to 80 years of age are eligible to claim rebates under Section 87A
• Super senior citizens above 80 years are not eligible to claim the rebate.
• The rebate is applicable to the total tax amount before applying 4% health and education cess
• The total income after subtracting the deductions should not exceed the threshold limit of Rs. 5 lakhs under the old regime or Rs. 7 Lakhs for FY- 2023-24 under the new regime

Let's Understand how to calculate rebate who have opted new regime

How to choose correct regime to minimize your tax liability?

While deciding about the regime it is important to take into account all the exemptions & deductions that available under old regime & new regime as discussed above. After deducting all relevant deductions & exemptions & you will get your Net total income under both regimes & now it is easy to compare that under which regime your taxability is minimal

It is important to choose the regime logically as in order to deduct TDS on salary an employee have to communicate the regime, he, wish to opt

An Assessee should also consider his current year losses if any like loss from house property, capital gains, or business & profession as it will affect your net total income

Let's understand practically with the help of an example that how actual computation can be done under both regimes.

Illustration:

Mr. X has following earnings per month

Basic Pay: 50,000.

Dearness allowance: Rs. 2,000.

House rent allowance: Rs. 2,00,000 (Gross).

Bonus: Rs. 1,00,000.

Professional tax paid: 2400.

Mr. X had paid interest on self-occupied house & having loss from self-occupied house of Rs. 1,00,000 & is eligible to claim 80C of Rs. 1,00,000 & 80D of Rs. 25,000.

Mr. X is residing in Delhi & paying rent of Rs. 18,000 per month.

Computation of Tax liability

Conclusion

As in FY 23.24 New regime is default tax regime hence it is important to select which TAX regime is more beneficial. After observing above computation, we get basic idea that how an individual can save taxes by comparing both regimes & make their strategy to reduce his tax liabilities.