It’s tax-saving season, and high earners are on a mission to maximize their tax savings. The central government has introduced a new tax regime, offering tax exemptions for incomes up to 7 lakh rupees, while the old tax regime provides exemptions for incomes up to 5 lakh rupees. However, if your annual income exceeds these limits, you might be liable to pay taxes.
📊 Understanding Tax Slabs
Under the old tax regime, income tax rules dictate that no tax is applicable on annual earnings up to 2.5 lakh rupees. A 5% tax is levied on income ranging from 2.5 to 5 lakh rupees, while a 20% tax applies to income between 5 to 10 lakh rupees. For annual incomes exceeding 10 lakh rupees, the tax slab is 30%.
💡 Strategies for Tax Saving
- Standard Deduction: Individuals are eligible for deductions up to 50,000 rupees. Therefore, if your income is 10 lakh rupees, you’ll be taxed on the remaining amount after deducting 50,000 rupees.
- Investment in Tax-Saving Instruments: By investing in schemes like PPF, EPF, ELSS, NSC, you can save up to 1.5 lakh rupees under Section 80C. Thus, reducing your taxable income to 8.5 lakh rupees from 10 lakh rupees.
- National Pension System (NPS): Investing up to 50,000 rupees annually in NPS qualifies for an additional deduction under Section 80CCD (1B). This can further reduce your taxable income to 8 lakh rupees.
- Home Loan Interest: Home loan interest payments up to 2 lakh rupees are eligible for tax saving under Section 24B. Deducting this from your income brings your taxable income down to 6 lakh rupees from 8 lakh rupees.
- Medical Insurance Premium: Paying for medical insurance premiums up to 25,000 rupees under Section 80D can save you taxes. Adding your spouse and children to the policy can increase the savings. Deducting this, your taxable income could be 5.25 lakh rupees.
- Donations: Donating to charitable organizations allows a tax deduction of up to 25,000 rupees under Section 80G. After this deduction, your income falls into the tax slab of up to 5 lakh rupees, where no tax is applicable as per income tax rules.
| Strategy | Deduction Amount (₹) | Taxable Income Example (Starting with ₹10,00,000) | Resulting Taxable Income (₹) |
|---|---|---|---|
| Basic Exemption (Old Regime) | N/A | 10,00,000 | 10,00,000 |
| Standard Deduction | 50,000 | 10,00,000 | 9,50,000 |
| Investment in Tax-Saving Schemes | 1,50,000 | 9,50,000 | 8,00,000 |
| National Pension System (NPS) | 50,000 | 8,00,000 | 7,50,000 |
| Home Loan Interest | 2,00,000 | 7,50,000 | 5,50,000 |
| Medical Insurance Premium | 25,000 | 5,50,000 | 5,25,000 |
| Donations | 25,000 | 5,25,000 | 5,00,000 |
Tax Slabs under the Old Tax Regime:
| Income Range (₹) | Tax Rate |
|---|---|
| Up to 2,50,000 | 0% |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | 30% |
By implementing these strategies, you can effectively manage your taxes and optimize your savings.