The tax system in our country is progressive, meaning that as a taxpayer’s income increases, the tax rate applied to that income also rises. This system makes sure that the tax burden is distributed more equitably among people, but it also brings higher tax liabilities for high earners.
However, the government also gives you many ways to legally reduce your tax by taking advantage of various deductions, exemptions, and benefits given under the Income Tax Act, of 1961. If you are looking for ways to Save Tax for Salary above 10 Lakhs, you’ve found your guide! We’ll take a look at some tips on How to Save Tax for Salary above 10 Lakhs by taking advantage of different investments, insurance premiums, loans, allowances, and more.
How to Save Tax on Salary Above 10 Lakhs?
In order to Save Tax for a Salary above 10 Lakhs and maximise your tax savings, you must be aware of the various deductions, exemptions, and investment options available under different sections of the Income Tax Act. Here are seven tips on How to Save Tax for Salary above 10 Lakhs:
1. Tax Saving Investments
Section 80C –
There is an abundance of tax-saving investment options available under Section 80C, such as:
- Public Provident Fund (PPF) – The PPF is offered by the Government of India. It has a lock-in period of 15 years, so it is a long-term investment option suitable for financial goals such as building a retirement corpus. You can start investing from as low as Rs. 500 up to a maximum investment of Rs. 1.5 lakh per year. Investing in PPF can help you reduce your taxable income by up to Rs. 1.5 lakh. The interest and maturity amounts of PPF are also tax-free.
- Employee Provident Fund (EPF) – Like PPF, EPF is also an EEE (Exempt Exempt Exempt) investment, which means the principal amount, interest, and maturity amount are all tax-free. Every employee contributes 12% of their basic salary + dearness allowance to this scheme, and the employer matches that amount. EPF investments can also reduce your taxable income by a maximum of Rs. 1.5 lakh.
- National Savings Certificate (NSC) – Like the PPF, the NCS offers guaranteed returns, but it has a shorter lock-in period of only 5 years. NCS allows you to claim tax deductions of up to Rs. 1.5 lakh every year.
- Tax-Saving Fixed Deposits (FDs) – These FDs are offered by banks and have a lock-in period of 5 years. They work similarly to traditional FDs, but there are a few differences. The first is the lock-in period of 5 years which is fixed, and the second is that you cannot break this FD. Traditional FDs can be redeemed prematurely by paying a fine, but tax-saving FDs generally don’t have this option. They also provide a tax deduction of Rs. 1.5 lakh to investors, but the interest earned is taxable.
- Equity Linked Savings Scheme (ELSS) – ELSS are also known as tax-saving mutual funds. These funds invest mainly in stocks and have a lock-in period of 3 years, which is the shortest lock-in period among all tax-saving investment options under Section 80C. They can also reduce your tax burden up to Rs. 1.5 lakh. ELSS is a popular option amongst investors because of the very high potential return on investment it offers. These funds are suitable for investors with a long investment horizon and high-risk tolerance.
- Unit Linked Insurance Plan (ULIP) – ULIPs give you the double benefit of investment and insurance. One part of the premium you pay is used to cover you, and the other is invested in a fund of your choice which could be equity, debt, or a combination of both. You are allowed free switches between funds throughout the tenure, so you can adjust your portfolio according to your risk appetite and market conditions. ULIPs also offer the same Rs. 1.5 lakh deduction as other Section 80C options, but the maturity value is only tax-free if you invest in a ULIP within a limit of Rs. 2.5 lakh every year.
- Life or Term Insurance – Like ULIPs, the premiums paid for term insurance policies for self, partner, or children qualify for a deduction of up to Rs. 1.5 lakh under Section 80C.
- Deduction on Home Loan Principal Amount – Section 80C also allows you to claim a deduction of up to Rs. 1.5 lakh every year on the principal component of your home loan EMI. The only condition is that the property should not be sold within five years from the end of the financial year in which you bought the property.
- Deduction on Tuition Fees – This deduction can only be claimed by a parent and is applicable only for the full-time education of a child in an institute established in India. The parent can benefit from a deduction of up to Rs 1.5 lakh for 2 children. If your spouse is also a working individual, combined you can both claim deductions for a total of 4 children.
Section 80CCD (1B)
This section offers an additional deduction of Rs. 50,000 to individuals investing in the National Pension System (NPS). This is a special deduction which is over and above the normal Rs. 1.5 lakh limit of Section 80C. The NPS is a pension scheme backed by the government to help retirees build a retirement corpus. You can contribute to NPS regularly during your working life and withdraw a part of the corpus in a lump sum upon retirement. So, the investment is locked till you reach the age of 60.
Section 80D
This section offers deductions on the health insurance premiums you pay for yourself, your spouse, children, and dependent parents. The maximum deduction limit for policies covering you, your spouse and your children is Rs. 25,000 if you are a non-senior citizen, and Rs. 25,000 for insuring your non-senior citizen parents. If your parents are senior citizens, however, the limit rises from Rs. 25,000 to Rs. 50,000. Thus a total benefit of Rs. 75,000 is available for insuring your family and dependent senior citizen parents.
If you are also a senior citizen, the deduction limit for policies covering you, your spouse, and your children increases to Rs. 50,000. Therefore, the maximum deduction available under Section 80D is Rs. 1,00,000. You can also claim up to Rs. 5,000 spent on preventive health check-ups within the overall limit of Section 80D.
2. Utilizing HRA (House Rent Allowance)
House Rent Allowance (HRA) is a part of your CTC and is used to help you with your rental expenses. Under Section 10 (13A) of the Income Tax Act, HRA can be either partially or fully exempt. If you live in your home, HRA becomes a fully taxable part of your salary. Remember that you cannot claim the HRA exemption under the new tax regime.
Here are some conditions that allow you to claim the HRA exemption. The lowest amount among these is the maximum you can claim:
- The actual HRA you receive.
- 50% of your basic salary + dearness allowance if you live in metro cities like Mumbai, Delhi, Kolkata, etc.
- 40% of your basic salary + dearness allowance if you live in non-metro cities.
- Actual rent you pay minus 10% of your basic salary + dearness allowance.
The minimum amount from these conditions can be claimed as an HRA exemption. You will also need your rent agreement and proof of rent payments to claim this exemption. If you are paying more than Rs. 1 lakh per year in rent, you will also need your landlord’s PAN. In case they don’t have a PAN, your landlord will need to sign a self declaration.
3. Other Allowances and Perquisites
Other than HRA, you can take advantage of several allowances and perquisites such as:
- Leave Travel Allowance (LTA) – This exemption is given under Section 10(5). It covers travel expenses for self and family within India, but only the actual travelling cost is eligible for exemption. That means the exemption does not cover expenses such as food, hotel charges, sightseeing, etc. Like HRA, LTA can only be claimed under the old tax regime.
- Standard Deduction – All salaried employees can claim a standard deduction of Rs. 50,000. This deduction is available under both, the new as well as the old tax regime.
- Meal Coupons – Under Section 17 (2) (VIII), the meal coupons provided by your employer are exempt up to Rs. 50 per meal.
- Special Allowances – Some allowances are exempt to the extent of the amount received or spent, whichever is less. For example, conveyance allowance, academic allowance, daily allowance, travelling allowance, and uniform allowance.
Important to note that you can only claim these allowances if they are a part of your CTC. Also, most of these allowances can only be claimed under the old tax regime. The new tax regime does however allow some allowances such as perquisites for official purposes, daily allowance, conveyance allowance, and transport allowance for a specially-abled individual.
4. Tax Deductions and Exemptions
Some other important tax deductions and exemptions that can significantly reduce your taxable income are:
- Section 80DD – This section deals with the tax deduction on medical treatment for a dependent handicapped person. If you have a loved one who has a disability (and a disability proof), you can claim a deduction up to Rs. 75,000 for normal disability and Rs. 1,25,000 for severe disability on the money spent for their medical treatment.
- Section 80U – This deduction can be claimed on the medical treatment of the taxpayer if the taxpayer is a disabled person. The maximum deduction is the same as under Section 80DD, Rs. 75,000 for normal disability, and Rs. 1,25,000 if disability is severe.
- Section 80G – This section allows you to reduce your taxable income by making donations. The maximum amount that can be deducted depends on the institution you are donating to. Some organisations qualify for a 100% deduction without an upper limit, while other institutions offer a 50% deduction without a limit. Also, not all donations qualify for deductions, so check that the organisation is approved by the Income Tax Department before donating.
- Section 80TTA – You can claim a deduction of up to Rs. 10,000 on the total interest you earn on savings accounts per year under this section.
- Section 80TTB – This benefit is only available to senior citizens, who can claim a deduction of up to Rs. 50,000 on interest income earned from deposits held with banks (fixed, recurring, and savings), cooperative societies, or post offices.
5. Tax Benefits on Loans
Home Loan Tax Benefits
While Section 80C offers a deduction of up to Rs. 1.5 lakh on the repayment of the principal portion of your home loan, Section 24B allows you to claim a deduction on the interest paid on your home loan. Under this section, you can claim a deduction of up to Rs. 2 lakh per year on the interest paid if the property is self-occupied.
Education Loan Tax Benefits
Tax benefits on education loans can be found under Section 80E. This section allows you to claim a deduction on interest paid on an education loan taken for pursuing higher education (for yourself, your spouse, children or for a person for whom you are a legal guardian). You can claim this deduction for a maximum of 8 years, and there is no upper limit on the amount that can be claimed.
This deduction can only be claimed for the pursuit of full-time higher education, meaning it applies to courses pursued after completing senior secondary education. However, education can be pursued in India or abroad. You’ll also need the interest certificate from your bank or NBFC to get this deduction.
Also Read: Section 80E: Tax Benefits on Education Loan
6. Salary Restructuring
Your CTC has many components such as basic salary, dearness allowance (DA), HRA, LTA, travelling allowance, conveyance allowance, daily allowance, and many more. Some of these components are fully taxable, like your basic salary and DA, while others are only partially or fully exempt from taxation. You can restructure your salary in such a way that you maximise the tax benefits available under various sections of the Income Tax Act. For example, if you live in a rented home, you can give a higher allocation to HRA. You can use similar ways to get a structure that works best for you.
7. Investing in Tax-Free Instruments
You can invest in tax-free instruments such as:
Tax-Free Bonds
These are long-term fixed income instruments that are issued by the government. Investing in these bonds can get you tax-free interest and help you minimise your tax burden. Some types of tax-free bonds are infra bonds, power bonds, railways bonds, housing bonds, and Public Sector Undertaking (PSU) Bonds.
Voluntary Provident Fund (VPF)
This is an extension of the Employee Provident Fund. As the name suggests, VPF is a voluntary scheme so the employer is not required to contribute to it. These contributions are over and above the EPF limit and they also qualify for the same tax benefits as EPF.
Also Read: NPS Tax Benefits: Maximize Your Savings with Tax Benefits of NPS
Example Calculation:
Suppose Ramesh earns a salary of Rs. 11 lakh annually. He lives in a rented home and has calculated that he can claim an HRA of Rs. 1.5 lakh. He has invested Rs. 2.5 lakh in Section 80C investments, and Rs. 50,000 in NPS. He has health insurance for himself and his senior citizen parents and pays a total premium of Rs. 75,000. He took out an education loan a few years ago and pays Rs. 45,000 interest annually. Let’s calculate his tax liability under both tax regimes – old and new.
Calculating Under The New Tax Regime
| Income (in lakhs) | Rate |
| 0 – 3 | 0 |
| 3 – 6 | 5% |
| 6 – 9 | 10% |
| 9 – 12 | 15% |
| 12 – 15 | 20% |
| Above 15 | 30% |
A standard deduction of Rs. 50,000 will apply here, so the taxable income becomes Rs. 10,50,000. The new regime doesn’t allow Ramesh to claim any deductions from HRA, investments, premiums, and loan repayments.
- The first Rs. 3 lakh are exempt.
- On the next Rs. 3 lakh, the tax would be 5% of Rs. 3 lakh = Rs. 15,000
- On the next Rs. 3 lakh, 10% of Rs. 3 lakh would be charged = Rs. 30,000.
- Tax on the next Rs. 1.5 lakh: 15% of Rs. 1.5 lakh = Rs. 22,500
- Total = Rs. 15,000 + Rs. 30,000 + Rs. 22,500 = Rs. 67,500.
- A cess of 4% is charged again: 4% of Rs. 67,500 = Rs. 2,700
Thus, the total tax liability on income of Rs. 11 lakh = Rs. 15,000 + Rs. 30,000 + Rs. 22,500 + Rs. 2,700 = Rs. 70,200
Calculating Under The Old Tax Regime
| Income | Tax Rate |
| Up to Rs. 2.5 lakh | None |
| Between Rs. 2.5 lakh and Rs. 5 lakh | 5% |
| Between Rs. 5 lakh and Rs. 10 lakh | 20% |
| Above Rs. 10 lakh | 30% |
The standard deduction of Rs. 50,000 is available under both regimes, so it will also apply here. Taxable income = Rs. 10,50,000.
The old regime allows many deductions and exemptions, so Ramesh’s taxable salary will be reduced further:
- Section 80C – Ramesh invested Rs. 2.5 lakh in 80C instruments, but he’ll only be able to claim a maximum deduction of Rs. 1.5 lakh under this section.
- HRA exemption – 1.5 lakh
- Section 80CCD (1B) – Rs. 50,000 for investing in NPS
- Section 80D – Rs. 75,000
- Section 80E – Rs. 45,000
Ramesh’s taxable income = Rs. 10,50,000 – Rs. 1,50,000 – Rs. 1,50,000 – Rs. 50,000 – Rs. 75,000 – Rs. 45,000 = Rs. 5,80,000
- The first Rs. 2.5 lakh are exempt.
- On the next Rs. 2.5 lakh 5% of Rs. 2.5 lakh will be charged = Rs. 12,500
- On the next Rs. 80,000 a 20% rate will be charged = Rs. 16,000
- Total = Rs. 12,500 + Rs. 16,000 = Rs. 28,500
- A cess of 4% is charged: 4% of Rs. 28,500 = Rs. 1,140
Total tax on income of Rs. 11 lakh = Rs. 12,500 + Rs. 16,000 + Rs. 1,140 = Rs. 29,640
So the total tax payable under the old regime comes out to Rs. 29,640, which is significantly less than the tax burden under the new tax regime. If Ramesh restructures his salary to include more tax-exempt components like LTA, makes eligible donations, or maybe takes a loan to own his dream home down the line, he can reduce his tax liability even more!
Also Read: Old Vs New Tax Regime: Which is Better?
Seeking Professional Help
As you can see in the above example, the importance of tax planning cannot be overstated. Ramesh made contributions to tax-saving instruments, which not only significantly reduced his tax burden but his investments will also help him achieve his financial goals in the future. That’s why consulting a tax advisor can only benefit you. These professionals can maximise your tax savings and help you keep more of your hard-earned money. They assess your unique financial situation and make a long-term plan that aligns with your financial goals and risk tolerance. This means recommending investments and instruments that not only come with tax benefits but also help you realise your financial dreams. Tax advisors also know all about the complex tax laws and keep up with the frequent changes. They can make sure you stay compliant with the Income Tax Department, so you can rest easy about meeting your tax obligations accurately and on time.
FAQs:
How much tax will I pay if my salary is 10 lakh?
How much tax you need to pay on a Rs. 10 lakh salary depends on the tax regime you adopt, as well as your ongoing investments. It also depends on how your salary is structured, for example, if your salary includes tax-exempt components such as House Rent Allowance or Leave Travel Allowance, you can reduce your taxable income.
Which regime is better if my salary exceeds ₹10,00,000?
Both the old as well as the new tax regimes have their own advantages. While the new regime offers lower tax rates, it also allows much fewer deductions. On the other hand, the old regime has higher tax rates but allows you to claim many tax deductions and exemptions. So if you have any investments or loans that allow you to reduce your taxable income, the old regime would be better. If there are not enough ways for you to reduce your taxable income significantly, the new regime might suit you.
Is it possible to pay zero tax on the 10,00,000 salary?
Yes! If you carefully plan your investments and do your tax planning beforehand, you may be able to save full tax under the old regime. This includes investing in tax-saving instruments under Section 80C, taking advantage of education loan tax benefits under Section 80E, utilising health insurance tax advantages under Section 80D, and many other ways! Connect with a Fincart tax advisor to save tax today!
How to reduce tax for salary above 10 lakhs
One can reduce their taxable income and thus their tax liability by taking advantage of the several tax deductions, exemptions, and benefits under the Income Tax Act, of 1961. You can invest in Section 80C instruments like the PPF, ELSS, NPS, ULIP, SSY, and SCSS, and take advantage of Sections 80CCD (1B), 80D, 80E, 80TTA, 80TTB, 80DDB, 80U, 80G, and more to save tax on your salary. You can also restructure your salary to include more tax-exempt components like HRA and LTA to further reduce your taxable income.
