We earn to spend, but we also earn to save for life’s important milestones, such as children’s higher education, post-retirement plans, or even simply to save tax. Sometimes, the forced investments to save tax become the base of the future planning. But since the budget 2023-34, some aspects of investments and taxation have changed. With the new tax regime, there are questions on the best way to invest.
This article will answer your questions on which tax regime is better for an income of Rs. 15 lakhs, and how to save tax on 15 lakh salary.
With savings and investment plans available freely, the outcome depends on the deductions from salary, and exemptions allowed - to plan for the minimum tax deduction for Rs. 15 lakhs salary.
Old and new tax regimes as per salary bracket
The new tax brackets have been designed to get higher-income groups to pay higher taxes. But even a person with an income of Rs. 15 lakhs annually must save as much as possible in taxes.
So How To Save Tax On A Salary Income Of Rs. 15 Lakhs?
Many sections under the IT Act, that earlier allowed for a whole list of deductions from taxable income, have been removed. The new tax regime has removed more than 70 deductions and exemptions from taxable income. Primary among them are:
Leave Travel Allowance (LTA)
House Rent Allowance (HRA)
The standard deduction that was allowed under Section 80TTA/80TTB
Professional tax and entertainment allowance on salaries
Helper and children's education allowance
Other special allowances [Section 10(14)]
Interest on housing loan on the self-occupied property or vacant property (Section 24)
Deductions under Section 80C, 80D, 80E
The new structure allows deduction from family pension income up to FY 2022-23 and a standard deduction of Rs. 50,000 up to FY 2022-23 (From FY 2023-24).
Tax deductions can now be claimed for
Transport allowances in case of a specially abled person
Conveyance expenditure incurred as part of the employment
Any compensation received to meet the cost of travel on tour or transfer
Daily allowance received to meet the ordinary regular charges or expenditures you incur on account of absence from a regular place of duty
Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
Interest on Home Loan on the let-out property (Section 24)
Gifts up to Rs 50,000
Deduction for employer’s contribution to NPS account [Section 80 CCD (2)]
Deduction for additional employee cost (Section 80JJA)
Amount paid or deposited in the Agniveer Corpus Fund under Section 80 CCH (2)
Which Tax Regime Is Better For 15 Lakhs Income
Under the old regime, you could claim exemptions from a large part of the income received. So effectively, with standard deductions and exemptions, a person with Rs. 15 lakhs per annum income would have a net taxable income of Rs. 10,78,800 and be liable to pay a tax of Rs. 1,36,140.
Under the new tax regime, with the standard deduction 50,000, deductions being employers' contributions to NPS, the total tax liability will be Rs. 2,25,000.
However, with standard deductions, as the FM stated during her budget speech, there will be a major relief for taxpayers.
How to save tax on 15 lakhs salary
The number of exemptions that have been removed will mean less savings and investments for a salaried individual.
However, there are certain deductions (mentioned above) allowed under the new tax regime as well. So, investing in them will certainly lower the tax burden. The comparison between the two regimes depends entirely on your investment planning. But one thing is clear, you cannot continue with the older savings and investment plan and save under the new regime. There will be major modifications needed, for the best benefit.
Also Read: Maximize Your Savings on an Income of 10+ Lakhs with Smart Tax Planning
How To Calculate Income Tax On Salary Above 15 Lakhs
The calculation of tax will depend on whether you choose the old or new tax regime.
Under the old regime, with standard deductions and investments that got an exemption, your salary of Rs. 15 lakhs could have a net taxable income of Rs. 10.78 lakhs. At the tax slab, the tax would be Rs. 1.36 lakhs plus 4% CESS.
In the new regime, the tax could be brought down to Rs. 2,25,000 + 4% cess, using the new deductions.
So, the advantage the new regime offers is lenient slabs for taxation and lower rates of taxation up to Rs. 15 lakhs. Above 15 lakhs, the tax rate is 30%, so the progressive calculation reduces the tax burden in the absence of deductions.
To get the exact amounts, the use of an Income Tax calculator will help, considering the amount of calculations involved. Entering all deductions, savings, and investments will show the correct tax amount.
To know more about an intelligent IT calculator, click here
To summarise, while the new tax regime has removed a large number of tax-saving advantages for an individual earning Rs. 15 lakhs annually, the tax slabs have been modified to allow a lesser absolute tax for them.
To calculate the tax on Rs. 15 lakhs salary income, and ascertain which is the best tax regime, you can use a smart tax calculator to get guidance for investments and savings possible under both regimes.
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