Finance Minister Nirmala Sitharaman announced the new tax regime in Budget 2020, giving taxpayers the option to choose between it and the existing tax structure when they file their taxes. While your income will be taxed at lower rates as per the new tax slab, there is a catch. You will no longer be able to utilise the deductions under the Income Tax Act as earlier to lower your tax liability any further.
As per government estimates, 5.3 crore tax payers out of a total of 5.78 crores claim tax exemptions amounting to less than ₹2 lakh. The most popular of these include investments in Public Provident Fund, life insurance plans, tax-saving fixed deposits etc most of which fall under the ₹1.5 lakh maximum limit provided as per Section 80C.
An additional tax benefit is available for contributions of upto ₹50,000 to National Pension scheme as per 80CCD(1B) provisions taking the total to ₹2 lakh. However, if you fall in the higher tax bracket and are looking forward to tax saving for income above ₹15 lakhs as you get ready to fill your income tax return for FY 2019-20, here are a few things to keep in mind:
In her budget speech, the Finance Minister explicitly stated that a person with an annual income of ₹15 lakh not availing any deductions as per the proposed tax structure will have to pay only ₹1.95 lakh as tax as opposed to ₹2.73 lakhs in the old regime. To achieve this, you have to let go of tax benefits elucidated under Chapter VI A of the Income Tax rules as well as the standard deduction of ₹50, 000 for FY 2019-20. New tax rules allow for greater tax saving for income above 15 lakhs in this case, as illustrated below.
| Old Tax Structure | Tax Calculation | New Tax Structure | Tax Calculation |
|---|---|---|---|
| 5% | 12,500 | 5% + 10% | 12,500 + 25,000 |
| 20% | 10,000 | 15% + 20% | 37,500 + 50,000 |
| 30% | 15,00,00 | 25% +30% | 62,500 + 0 |
| Total (1+2+3) | 2,625,00 | Total (1+2+3) | 187500 |
| Cess (4%) | 10,500 | Cess (4%) | 7500 |
| Income Tax | 273000 | Income Tax | 195000 |
If you have invested in Public Provident Fund, Employees Provident Fund, Sukanya Samriddhi Scheme, life insurance or health insurance premium, tax-saving fixed deposits from banks or post offices or any other provisions that allow tax exemption to the tune of ₹1.5 lakh, you would still stand to lose ₹31,200 in tax saving for income above 15 lakhs by following the old school tax paying method. The new tax regime would work in your favour even in this case. It allows you to claim tax benefit on income from life insurance and agriculture, proceeds from voluntary retirement scheme, rent paid, encashing your leaves on retirement and compensation due to company downsizing.
If your annual income is between 15 lakhs to 20 lakhs and you claim tax deductions worth 2.5 lakh, you have the option to choose between either of the two regimes since the tax payable will be more or less the same. However, if you are focussed on tax saving for income above 15 lakhs and the amount of exemption in tax sought by you is more than 2.5 lakhs, it is prudent to stick to the old method of tax computation. Let us understand this by looking at tax computation by both methods for a person drawing an yearly salary of ₹20 lakhs.
| Details | Tax Calculation (Old) | Tax Calculation (New) |
|---|---|---|
| Salary Drawn | 20,00000 | 20,00000 |
| Standard Deduction | 50,000 | NIL |
| Income under Salary | 19, 50000 | 20,00000 |
| Chapter VI A Exemptions | 150000 | Nil |
| Taxable Income | 17,50000 | 20,00000 |
| Income Tax | 3, 37, 500 | 3, 37,500 |
| 4% Cess | 13, 500 | 13,500 |
| Tax Payable | 3,51,000 | 3,51,000 |
You can save a significant amount of money by donating to a registered NGO, as a percentage of the amount donated is tax-free under section 80G of the Income Tax Act.
- Clear Tax
As your income grows so does your tax liabilities. Fortunately, Indian Income Tax Laws allow multiple ways to reduce your tax liability. One of the most effective and beneficial ways of saving your taxes is through tax-saving investments.
So, how do you save tax for a salary above ₹10 Lakhs? Here’s a list of investments that will help you save tax while you build a stronger future for your family:
a) Financial Protection Investments
b) Invest for Long-Term Goals & Retirement
c) Invest for Your Child’s Future
d) Protect Your Wealth from Inflation & Market Trends
a) The maximum deduction available on self-contribution to NPS Tier-1 account is limited to:
b) You can contribute an additional amount for a deduction of up to ₹50,000 a year
a) Health insurance for yourself and your family
b) Health Insurance for your parents
a) If you bought or constructed a home using a home loan the principle and interest payment on the loan allows for a tax deduction
b) Interest payments up to ₹2 lakhs deductible under section 24B
c) Principal repayment can be claimed under Section 80C
From the above table, you can easily see that you can claim various deductions on your salary income. Now, you can save tax if you earn a salary of ₹15 lakhs; here’s a table that will show you how to save tax for a salary above 15 lakhs:
| Deductions to be claimed | Available Deduction (₹) |
|---|---|
| Standard Deduction | 50,000 |
| Investments u/s 80 C | 150,000 |
| Medical insurance premium u/s 80 D | 25,000 |
| Additional Deduction on NPS* | 50,000 |
| Home loan interest | 200,000 |
| Total | 475,000 |
From above, you can see that if your income is ₹15 LPA, you can claim various deductions from taxable income up to ₹4.85 lakhs.
Note: You can avail of the deductions and exemption only if you opt for the old tax regime. These deductions and exemptions are not available in the new tax regime.
Here is the table showing how much tax do have to pay on ₹15 lakhs income if you opt for old and new tax regimes:
Note: The deductions and exemptions are not available in the new tax regime.
| Category | Old Tax Regime (₹) | New Tax Regime (₹) |
|---|---|---|
| Income | 15,00,000 | 15,00,000 |
| Deductions | 4,85,000 | 0 |
| Taxable income | 10,15,000 | 15,00,000 |
| Income tax | 117,000 | 188,000 |
| Add: Cess | 4680 | 7500 |
| Net Tax liability | 121,680 | 195,500 |
The best way to save tax for a salary above 15 lakhs is to opt for the old tax regime and claim all the available deductions and exemptions on tax-saving investments.
Alternatively, you can follow the new tax regime to file your income tax return. However, once selected you cannot claim any carried forward losses or deductions on tax-saving investments.
Understanding and effectively utilising tax-saving strategies on salary is important for financial well-being. By exploring various tax-saving instruments, such as investments in provident funds, insurance policies, and equity-linked savings schemes, individuals can optimise their tax liabilities and secure their financial future. Moreover, being aware of the different tax slabs and thresholds ensures a strategic approach towards tax planning, enabling individuals to minimise their tax burden while maximising their savings and investments. Therefore, by staying informed and proactive in managing one's finances within the framework of tax regulations, individuals can achieve greater financial stability and security in the long run.
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Under the new as well as old tax regimes, income tax on 15 lakhs salary is 30%.
No, the income tax rate under the new tax regime for 10 lakh income is 15%. Under the old ta regime, it was 20%.
No, the income tax rate for a 10 lakh income under the new tax regime is 15%. Under the old tax regime, it was 20%.
In the old tax system, a person under 60 was exempt up to ₹2.5 lakhs, a senior citizen between the ages of 60 and 80 was exempt up to ₹3 lakhs, and a super senior citizen over 80 was exempt up to ₹5 lakhs.
For those who choose to use the new tax regime, the maximum amount free from taxes is ₹3 lacs.
The income tax department offers a baseline exemption limit that you might use to lower your tax liability. For normal taxpayers, this exemption limit is set at ₹2.5 lakh for the 2023–24 fiscal year. Thus, you may be able to deduct taxes on the first ₹2.5 lakh of your salary if you want to save income tax on ₹15 lakhs salary.
