In India, the Income Tax Department taxes an individual’s income based on thetax slab they belong to. Taxpayers are always looking for measures to pay zero tax on salary. But they miss out on salary optimisation. If you want to pay zero tax on a salary above 10 lakh, give this article a read. Here you will find various tips on tax planning for salary above 10 lakhs.
Income tax slabs under the old income tax regime vs the new income tax regime:
Let us first understand the tax regimes and how to choose between old and new tax regimes. These are the slab rates under the old income tax regime vs the new income tax regime:
As per the new income tax guidelines, you can opt for either the new or the old regime whilefiling your taxes, with the new tax being your default tax regime from FY 2023-24 onwards. Here is a difference between the two:
Tax Slab | FY 2023-24 Tax Rate (Old tax regime) | Tax Slab | FY 2023-24 Tax Rate (New tax regime) |
Up to Rs 2,50,000 | Nil | Up to Rs 3,00,000 | Nil |
Rs 2,50,000 – Rs 5,00,000 | 5% | Rs 3,00,000 – Rs 6,00,000 | 5% |
Rs 5,00,000 – Rs 10,00,000 | 20% | Rs 6,00,000 – Rs 9,00,000 | 10% |
Rs 10,00,000 and beyond | 30% | Rs 9,00,000 – Rs 12,00,000 | 15% |
NA | NA | Rs 12,00,000 – Rs 15,00,000 | 20% |
NA | NA | Rs 15,00,000 and beyond | 30% |
Budget 2024 update: There is no change in tax slabs as per Budget 2024.
Ways to save tax on 10 lakhs salary
If you opt for the old income tax regime in FY 2023-24, you must understand your salary structure.
Understanding Salary Structure:
Your salary component may include various tax-exempt allowances. The remaining salary will be your taxable income.
Particular | Old tax regime |
Gross Salary u/s 17(1) | XXXX |
Less: Exemption u/s 10 | |
HRA Exemption | XXXX |
LTA Exemption | XXXX |
Children education and hostel allowance | XXXX |
Less: Deduction u/s 16 | |
Standard deduction | XXXX |
Income under the Head Salary | XXXX |
Less : Deduction under Chapter VI-A | |
Section 80C | XXXX |
Net Total Income | XXXX |
Therefore, we can maximisetax savings through exemptions and deductions. It is important to note that the majority of the deductions are only available in the old tax regime.
Part 1- Exemptions
You can find out your salary structure from the CTC, which generally looks like:
Salary Component | Taxability |
Basic | Fully-taxable |
Dearness Allowance | Fully-taxable |
House Rent Allowance (HRA) | Exempt up to a certain limit.Calculate now |
Leave Travel Allowance (LTA) | Actual travel ticket expenses are exempt for 2 trips in 4 years under 10(5).Read more |
Mobile/ Internet reimbursem*nt | Exempt if: – used predominantly for office purposes – proofs/bills submitted |
Children's Education and hostel Allowance | Rs. 4800 per child (max 2 children) |
Food | Rs. 50 per meal (max 2 meals a day) Annual = Rs. 31,200 (50*2*26 days*12 months) |
Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
Professional Tax | Generally Rs 2,400 (Varies from state to state) |
Part 2- Deductions
When you are tax planning for salary above 10 lakhs, you can get deductions on the following:
Paying health insurance policy premium (Section 80D) | Self, your spouse, and your dependent children: Rs 25,000 (Rs 50,000 if aged 60 and above) Parents: Rs 25,000 (Rs 50,000 if aged 60 and above) |
Opting for an education loan (Section 80E) | Interest deduction for 8 years from the year of repayment of loan taken for the higher education of yourself, your spouse, dependent children, or a student of whom you are the legal guardian |
Donating to charity (Section 80G) | 50% or 100% of the eligible amount for notified institutions. |
Investing in tax saving instruments (Section 80C) | Tax benefit of Rs.1,50,000 per year. You can invest in the following options: – Employees’ Provident Fund (EPF) – Public Provident Fund (PPF) – Equity Linked Saving Scheme funds (ELSS) – Home loan repayment and Stamp duty – Sukanya Smriddhi Yojana (SSY) – National Savings Certificate (NSC) – Fixed Deposit for 5 years, and more |
Costs to treat disabled dependents (Section 80DD) | If you have disabled dependents for whom you bear medical expenses, you are eligible for the tax relief: – 40% disability: Rs.75,000 – 80% disability: Rs.1,25,000 |
Deductions on home loan payments | Principal amount: Upto Rs 1.5 lakhs u/s 80C Interest amount: Upto Rs 2 lakhs paid u/s 24b |
The maturity amount of a Life Insurance Policy | Maturity proceeds are tax-exempt if the sum assured is ≤: – 20%: policies issued before 1 April 2012 – 10%: policies issued after 1 April 2012 – 15%: policies issued after 1 April 2013 for a person with disability or disease. |
How to pay zero tax on a 10 lakh salary? Tax calculation example
Let us practically see a tax computation on how you can pay zero tax on a 10 lakh salary under both regimes:
Calculation of tax under the old and new tax regime.
Gross Salary | 10,00,000 | 10,00,000 |
Less: | ||
HRA | (1,50,000) | ❌ |
LTA | (40,000) | ❌ |
Children’s education and hostel allowance | (9,600) | ❌ |
Standard Deduction | (50,000) | (50,000) |
Professional Tax | (2400) | ❌ |
Taxable Salary Income | 7,24,000 | 9,50,000 |
Less: Deductions | ||
80C (Refer to note below)** | (1,50,000) | ❌ |
80D | (50,000) | ❌ |
80E | (25,000) | ❌ |
Net Taxable Income | 4,99,000 | 9,50,000 |
Tax on the above income | 12,450 | 54,600 |
Rebate u/s 87A | (12,450) | ❌ |
Total Tax on Rs 10 lakh under the old regime (inclusive of cess) | 54,600 |
Additionally, you may claim these deductions if eligible:
Interest on home loan deduction u/s 24b | (2,00,000) |
Home loan 80EEA | (1,50,000) |
Investments in National Pension Scheme (NPS) u/s 80CCD(1B) | ( 50,000) |
**Note: You might not always have a home loan or be interested in the investment plans listed underSection 80C. However, you may consider these investments to make use of the entire Rs 1.5 lakh limit under 80C:
- EPF: Around Rs 30,000 – Rs 72.000, i.e., 12% of your basic + DA (contribution already made by your employer)
- Term plan insurance: Rs 12,000 premium (Around Rs 1 Crore cover)
- ULIP or endowment plant: Rs 12,000 premium
- ELSS mutual funds: Rs 60,000 (Investment: Rs 500 per month SIP, Returns- 12% CAGR, Lock-in-period: 3 years)
- Children’s Education fees: (Rs 25,000 to Rs 1 lakh)
In the above 2 scenarios, you will observe that after claiming deduction and exemption in the old tax regime, zero tax liability comes up. But in the new tax regime additional liability of Rs. 54,600.
Thus it is very important that you check based on your available salary, exemption and deduction which tax regime is more beneficial for you. You may use thisold vs new tax regime calculator.
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