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 a salary above 10 lakhs.
Latest Update
As per the Finance Act 2023, Tax Slabs under the New Tax Regime have been updated. Accordingly now the basic exemption limit is Rs. 3,00,000. Also Rebate under Section 87A is made applicable on Income up to Rs 7,00,000. Thus, if you opt for the New Tax Regime, those Individuals having Income less than Rs. 7,00,000 will have to pay Zero Tax Liability.
Income Tax Slabs Under Old vs New 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 tax regime vs the new tax regime:
As per the new income tax guidelines, you can opt for either the new or the old regime while filing your taxes, with the new tax regime 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
Understanding of your Salary structure, available exemptions, and deductions is necessary to save tax on your salary income.
Understanding Salary Structure:
Your salary component may include various tax-exempt allowances. The remaining salary will be your taxable income.
Particular | Amount |
Gross Salary u/s 17(1) | XXXX |
Less: Exemption u/s 10 | |
HRA Exemption | XXXX |
LTA Exemption | XXXX |
Reimbursem*nt | XXXX |
Children's 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 most of the deductions are only available in the old tax regime.
Exemptions and Deductions Under New Tax Regime
Unlike the Old tax regime, the New tax regime has minimal scope for claiming deductions or exemptions. Deductions that are available in the New tax regime are as follows.
- Standard deduction of Rs 50,000. This can be claimed only for individuals having income from salary.
- Section 80CCD(2) - Employer Contribution to NPS
- Section 80CCH - Investment made in Agniveer Corpus
- Section 57(iia) - Family Pension received.
- 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)
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
Exemptions and Deductions Under 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 two 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. 26,400 (50*2*22 days*12 months) |
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% or severe 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 under secton 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. – Exemption is applicable in case of ULIP only if the annual premium does not exceed Rs 2,50,000 (From 1st April 2021) – Exemption is applicable in case of Life insurance other than ULIP only if the annual premium does not exceed Rs. 5,00,000 (From 1st April 2023 onwards) |
Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
How to Pay Zero Tax on a 10 Lakh Salary?
Let us practically see a tax computation on how you can pay zero tax on a 10 lakh salary under both regimes:
Example on Calculation of Tax under New and Old Tax Regime
Mr A has a salary income of Rs. 10 lakhs. He is eligible to claim an HRA exemption of Rs. 1.5 lakhs, LTA of Rs 40,000, Children's education allowance of Rs 9,600, and Profession tax of Rs 2,400. He has also invested in PPF of Rs. 1.5 lakhs eligible for deduction under section 80C, Medical insurance premium of Rs. 50,000 and paid interest on education loan of Rs. 55,000. Tax calculation will be as follows
Particular | Old Tax Regime | 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 | 7,48,000 | 9,50,000 |
Less: Deductions | ||
80C (Refer to note below)** | (1,50,000) | ❌ |
80D | (50,000) | ❌ |
80E | (55,000) | ❌ |
Net Taxable Income | 4,93,000 | 9,50,000 |
Tax on the above income | 12,150 | 54,600 |
Rebate u/s 87A ( under the old regime rebate amounts to Rs. 12,500) | (12,150) | ❌ |
Total Tax on Rs 10 lakh | 54,600 |
Additionally, you may claim these deductions under the Old Tax Regime 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 only sometimes 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 zero tax liability arises after claiming deduction and exemption in the old tax regime. But in the new tax regime, there is a tax 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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