Traditionally, savings in India have focused on two things - planning for the family’s future and saving on taxes. The budget for 2023-24 has implemented a new tax regime. Below, we analyse the advantages and disadvantages of both tax regimes for income of 10 lakhs, enabling you to determine which is more beneficial.
Importance of saving tax for salary above 10 lakhs
‘How much tax should I pay for 10 lakhs income?’ If that’s the question on your mind, wouldn’t you like to know how to save tax on a 10 lakhs salary, so you can maximise savings and reinvest it to earn more.
Until last year, Section 80C of the Income Tax Act recognized a number of investments as tax deductible.
These included, to name a few:
House Rent Allowance
Premium for life insurance and Provident fund contribution under Section 80C of the IT Act
Pension fund (NPS) contributions under Section 80CCD (1) of the Act
National Savings Certificates
Mediclaim expenses under Section 80D of the IT Act
Tax savings fixed deposits, repayment of principal amount of home loan
Children’s tuition fees
Interest payment on education loan – Section 80E of the IT Act
Donation to charitable institutions – Section 80G of the IT Act
The overall combined limit to claim the deductions is Rs. 1,50,000. But to encourage savings, an additional Rs. 50,000 is exempted from tax under NPS (Section 80CCD(1B).
Income tax slabs under old income tax regime vs new income tax regime
Since both the tax regimes are available, everyone should be aware of the best way to ensure minimum taxation. Here are some pointers on how to save tax on 10 lakh income.
1) The biggest change in the new tax regime is that individuals earning up to Rs. 7 lakhs need to pay no tax. (Rebate under section 87A)
2) The old tax regime rebates under section 87A remains the same, i.e., 12,500 for income up to Rs 5,00,000.
Under the old regime, the taxation bracket starts from Rs. 2.5 lakhs per annum, hence:
Up to Rs. 5 lakhs income - 5% tax
Rs. 5 lakhs to Rs. 10 lakhs - 20% tax
Rs. 10 lakhs and above - 30% tax
3) In the new regime, the slabs grow larger, so income up to Rs. 3 lakhs are exempt from tax. Thereafter:
Rs. 3 to 6 lakhs - 5% tax
Rs. 6 to 9 lakhs - 10% tax
Rs. 9 to 12 lakhs - 15% tax
Rs. 12 to 15 lakhs - 20% tax
Rs. 15 lakhs and above - 30% tax
How To Save Tax For Salary Above 10 Lakhs
Careful choice of the tax regime can help to save tax for 10 lakhs income.
The first step will be to identify the taxable and exempt components of your income. For most individuals:
The basic salary and the DA component is fully taxable.
House rent allowance can be claimed as deduction in parts.
Part of mobile allowance is exempt.
Children’s education is also exempt in some companies.
Standard deductions of Rs. 50,000 and professional tax for their employees
The final figure is your taxable salary.
Then you can plan for some investments to get more deductions from the taxable income.
Health insurance policy premium (under Section 80D), for Self, Spouse, Dependent children & Parents for up to Rs. 25000. For ages 60 and above, Rs. 50,000 is deductible.
Student loan for self or legal dependents under (Section 80E), for a deduction on the interest paid for 8 years from the year of repayment.
Tax saving instruments under (Section 80C) to get a tax deduction of up to Rs. 1,50,000- in any of:
1) Employees’ Provident Fund (EPF)
2) Public Provident Fund (PPF)
3) Equity Linked Saving Scheme funds (ELSS)
4) Sukanya Smriddhi Yojana (SSY)
5) National Savings Certificate (NSC)
6) Fixed Deposit for 5 years, and more
Home loan payers can claim deductions for up to Rs 1,50,000 on the principal amount under section 80C, and the interest amount of up to Rs 2,00,000 paid under section 24B.
Donations to charity get exemption of up to 100 percent under Section 80G.
For disabled dependents, exemption on costs to treat them under Section 80DD, depending on the level of disability. For a 40% disability, you are eligible for the tax relief of up to Rs.75,000, and for a patient up to 80% disability, you can claim Rs.1,25,000.
How to Calculate Income Tax on salary of 10 lakhs
While it may seem complicated, the IndiaFirst Life Income Tax Calculator shows you how to calculate income tax online in a just a few clicks.
Let us see a practical calculation on how best to save tax on Rs. 10 lakhs income. The calculations are simple, for a person with a salary of Rs. 10 lakhs:
Gross Salary - Rs. 10 lakhs
Deductibles:
Standard Deduction - 50,000
Professional Tax - 2400
HRA - 1,50,000
LTA - 40,000
Reimbursements - 24,000
Children’s education and hostel allowance - 9,600
So, the taxable Income is, Rs. 7,24,000. From this you can save:
Under 80C - 1,50,000
Under 80D - 50,000
Under 80E - 25,000
This leaves the net taxable income as Rs. 4,99,000. On the above income you will need to pay Rs. 12450, which can be claimed as rebate under section 87A of the old regime.
Under the new tax regime, only three deductions are available-
Standard deduction of Rs 50,000 FY 2023-24
Section 80CCD (2) under the employer's contribution to NPS
Section 80 CCH for investment in the Agniveer Corpus Fund
The calculations for the new regime are quite simple:
For the first Rs. 3 Lakhs of your taxable income you pay zero tax
For the next Rs. 3 lakhs you pay 5% i.e., Rs.15,000
For the next 3 lakhs you pay 10% i.e., Rs.45,000
For the next 3 lakhs you pay 15 % i.e., Rs. 90,000
For the next 3 lakhs you pay 20% i.e., 1,50,000
For your taxable income part which exceeds Rs. 15 lakhs you pay 30% on the entire amount.
So for an income of Rs.10 lakhs, the final tax applicable is Rs. 60,000. Under the new regime, there is no clear way to save this tax.
Which Tax Regime Is Better For 10 Lakhs
The old regime allows for several deductions, and rebates. So, you can save, and invest, while escaping taxes.
Under the new regime, the taxation slabs have been made easier, but the deductions have been removed. As per the above calculator, there is no way to save tax in excess of Rs. 60,000.
Clearly, the old tax regime is better to save tax on Rs. 10 lakhs income
However, the final calculation rests on the income, its breakup, and exemptions by the salary payer.
Also Read: The Difference Between Old and New Tax Regime
Why You Need An Income Tax Calculator
An accurate, simple Income Tax Calculator helps to know how much tax to pay in a year. You simply enter your income and investment details like deductions, exemptions, annual income and expenses, other tax-saving investments, etc.
The tool can give you a step-by-step process of calculation of final taxes payable. For an instant calculator to solve all your tax payment needs, click here.
Starting April 1, 2023, the new tax regime is the default tax regime. Under the new tax norms, most deductions are not available, but the slabs have become easier. Now individuals need to plan income and investments around how much tax to pay for Rs.10 lakh in a year.
With the new budget, many of the earlier saving and investing habits will need to be changed. But the choice of regime is still left to the earner - they can choose the new regime or continue with the old, depending on their investment and tax appetite.
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