In India, the income tax department has set up a progressive tax regime, meaning the tax rates keep increasing with your income. However, by familiarising yourself with effective tax reduction strategies, you can benefit a lot. You can opt for various tax-saving measures to reduce your tax burden.
Take a look at this article if you are looking for tips on how to save tax for a salary above Rs 12 lakh.
How to Save Tax if You Have an Annual Salary of Above Rs 12 Lakh?
Let us take a look at the old tax regime tax slab to get an idea regarding how much tax you need to pay in case your income is above Rs 12 lakh:
Old Tax Regime Tax Slabs
Tax Slab | Tax Rate |
Up to Rs.2,50,000 | Nil |
Rs.2,50,001 to Rs.5,00,000 | 5% |
Rs.5,00,001 to Rs.10,00,000 | 20% |
Above Rs.10,00,000 | 30% |
Now let us check out all the exemptions and deductions applicable in case you opt to pay your tax using the old tax regime:
Exemptions
- House Rent Allowance
- Leave Travel Allowance
- Standard Deduction
- Mobile Reimbursem*nt
- Food Coupons
- Books and Periodicals
- Children Allowance
- Books and Periodicals
Deductions
- Investments and payments underSection 80C, 80CCC, 80CCD
- Insurance premium of health policy under Section 80D
- Deductions on interest payment for loans taken for higher studies under Section 80E
- Interest payment on home loan under Section 80EE
- Donations to a charitable organisation under Section 80G
- Deductions on savings account interest Section 80TTA
Calculation of Tax UsingOld Tax Regime
Here is a tabular representation of calculating your tax liability in case your income is Rs.12,50,000:
Gross Salary | Rs.12,50,000 |
Exemptions under section 10: | |
House Rent Allowance | Rs.60,000 |
Leave Travel Allowance | Rs.20,000 |
Deduction under section 16: | |
Standard Deduction | Rs.50,000 |
Professional Tax | Rs.2,400 |
Deduction as per Chapter VI: | |
Section 80C, 80CCC, 80CCD(1) | Rs.1,50,000 |
Section 80D | Rs.50,000 |
Section 80E | Rs.25,000 |
Total Exemption and Deduction | Rs.3,57,400 |
Net Taxable Income | Rs.8,92,600 |
Tax Calculation | |
Up to Rs.2,50,000 | Nil |
Rs.2,50,001 to Rs.5,00,000 (5%) | Rs.12,500 |
Rs.5,00,0001 to Rs.10,00,000 (20%) | Rs.78,520 |
Above Rs.10,00,000 (30%) | Nil |
Total Tax | Rs. 91,021 |
Tax Rebate | Nil |
Net Payable Tax (including 4% cess) | Rs. 94,661 |
New Tax Regime Tax Slabs (FY 2023-24)
Before going forward with the calculations, let us take at the tax slab applicable for the new tax regime for the financial year 2023-24:
Tax Slab | Tax Rate |
Up to Rs.3,00,000 | Nil |
Rs.3,00,001 to Rs.6,00,000 | 5% |
Rs.6,00,001 to Rs.9,00,000 | 10% |
Rs.9,00,001 to Rs.12,00,000 | 15% |
Rs.12,00,001 to Rs.15,00,000 | 20% |
Above Rs.15,00,000 | 30% |
Unlike previous financial years, you can now claim certain deductions if you opt for the new tax regime. The Union Budget 2023-24 announced a list of tax deductions that you can claim under the new tax regime, which is applicable for the financial year 2023-24 and onwards:
- Standard Deduction
- Deduction for Agniveers under Section 80CCH
- Deduction of employer’s contribution to National Pension Scheme under Section 80CCD(2)
- Family pension as per section 57(iia)
- Conveyance Allowance
- Transport Allowance with respect to physically challenged.
Calculation of Tax Using New Tax Regime (FY-2023-24)
Now let us check out the calculation of your tax liability on an annual salary of Rs 12 lakh in case you opt for the new tax regime:
Gross Salary | Rs.12,50,000 |
Standard Deduction | Rs.50,000 |
Net Taxable Income | Rs.12,00,000 |
Tax Calculation | |
Income up to Rs.3,00,0000 | Nil |
Rs.3,00,001 to Rs.6,00,000 (5%) | Rs.15,000 |
Rs.6,00,001 to Rs.9,00,000 (10%) | Rs.30,000 |
Rs.9,00,001 to Rs.12,00,000 (15%) | Rs.45,000 |
Rs.12,00,001 to Rs.15,00,000 (20%) | Nil |
Above Rs.15,00,000 (30%) | Nil |
Total Tax | Rs. 90,000 |
Tax Rebate | Nil |
Net Tax Payable (including 4% cess) | Rs.93,600 |
Although there are multiple deductions and exemptions that you can take advantage of in case you opt for the old tax regime, the tax slabs are better in case of the new regime. In our example, the new tax regime fared better than the old tax regime despite all the tax-saving investments for a salary above Rs 12 lakhs.
Final Word
The old and new tax regimes can be utilised judiciously to save taxes if you learn the intricacies of our taxation system. If you want to opt for the old tax regime, invest in schemes like the National Pension Scheme (NPS), Equity Linked Savings Scheme (ELSS) Investment, Sukanya Samridhhi Yojana (SSY) and many more. If you wish to opt for the new tax regime, you can still plan your investments and save yourself from paying hefty taxes.
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How To Save Tax For Salary Above 10 Lakhs?
How To Save Tax For Salary Above 15 lakhs?
How To Save Tax For Salary Above 20 Lakhs?
How To Save Tax For Salary Above 30 Lakhs?
