Income Tax Above 15 Lakh

Annual income tax payment is a big concern for individuals, especially the salaried class, who commence tax planning exercises even as the new financial starts. Additionally, the input is the income tax proposals presented by the Finance Minister in the annual Union Budget on 1 February. While the salaried people submit Form 12BB to their employer to reduce TDS on salary, others offer Forms 15G and 15H to prevent TDS on interest income. 

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However, the 2020 Union Budget introduced a new angle with an alternative tax regime with lower income tax slab rates. So, let us find out more.

Income Tax Slab Rates

Individuals pay taxes on their annual income based on the tax slab rates proposed in the Finance Bill. However, the 2020 budget presented the taxpayers with an option to choose between two income tax slab rates with varying approaches. The old tax structure continues with several deductions and exemptions. In contrast, the new income tax regime offers lower tax slab rates. However, the catch is giving up on deductions and exemptions while computing the tax liability.

Old Income Tax Slab Structure New Income Tax Slab Structure
Income Spread Slab Rate (%) Income Spread Slab Rate (%)
Rs.2.50 Lakhs and below Exempt Rs.2.50 Lakhs and below Exempt
Rs.2.5 Lakhs to below Rs.5 Lakhs 5 Rs.2.5 Lakhs to below Rs.5 Lakhs 5
Rs.5 Lakhs to below Rs.10 Lakhs 20 Rs.5 Lakhs to below Rs.7.5 Lakhs 10
Rs.7.5 Lakhs to below Rs.10 Lakhs 15
Above Rs.10 Lakhs 30 Rs.10 Lakhs to below Rs.12.5 Lac 20
Rs.12.5 Lakhs to below Rs.15 Lakhs 25
Above Rs.15 Lakhs 30
In addition, you pay Cess at 4% and Surcharge at applicable rates.

Points to Note

  • The minimum income tax slab rate is 5%, while the maximum is 30%

  • The old slab structure comprises three income ranges with specific income tax rates

  • The new slab structure consists of six income ranges with typical income tax slab rates within the spectrum

  • Therefore, the flexibility of reducing individual tax liability is more significant in the new tax slab rate structure

  • On the other hand, it comes at a cost as you do away with all the permissible deductions and exemptions per the old structure, including the standard deduction.

  • An illustration further clarifies the concept. For an individual with an annual Income of Rs.15 Lakhs, the computation is without any deductions, barring the standard deduction in the old tax regime. It gives an even field to both the contending tax slab structures.

Old Income Tax Slab Structure New Income Tax Slab Structure
Slab Rates Tax Amount Slab Rates Tax Amount
5% 12500 5% + 10% 12500 + 25000
20% 100000 15% + 20% 37500 + 50000
30% 135000 25% + 30% 62500 + 0
Tax 247500 Tax 187500
Cess @ 4% 9900 Cess @ 4% 7500
Tax Liability 257400 Tax Liability 195000

The above-grid amply demonstrates that you can save up to Rs. 62400 under the new income tax regime. However, you do not claim any deductions and exemptions, except for the standard deduction of Rs.50000, which comes by default. However, there can be drastic alterations if you can save substantially by claiming exemptions allowed under various sections of the IT Act. So, let us find out more.

Tax Saving Avenues For Rs.15 Lakhs And Above Annual Salary

The slab structure ensures that your tax liabilities grow alongside your growing income. Fortunately, you can adopt multiple options to reduce your tax liabilities by tapping the various deductions and exemptions allowed under India’s tax laws. No wonder tax savings instruments are in great demand among the taxpayers. In addition, you build a stronger financial future while saving on your tax liability. So, let us check out the available avenues to reduce tax liability and save money for the future.

  1. Save Rs.1.5 Lakhs on your Taxable Income under Sections 80C, 80CCC, and 80CCD:

    a. Financial Protection Instruments:

    • Term Insurance

    • Life Insurance

    b. Retirement and Long-Term Objectives:

    • Public Provident Fund (PPF) and Employee Provident fund (EPF)

    • Unit Linked Insurance Plans (ULIP)

    • Pension or Annuity Plans from Insurance providers

    • National Pension Scheme (NPS) Tier-I Account

    • Senior Citizen’s Savings Scheme (SCSS)

    • Invest in Real Estate

    c. Investment for Child’s Future:

    • Sukanya Samriddhi Scheme (SSS)

    • Child Plans from Insurance Providers

    d. Wealth Protection:

    • National Savings Certificate(NSC)

    • Tax Saving Deposits – 5 Year

    • Life Insurance endowment and Money-back plans

  2. Additional Rs.50000 reduction through Section 80CCD: The statutory deduction allowed under the NPS are:

    • The usual rate is 10% of the subscriber’s monthly salary, while it is 14% for government and bankers

    • For self-employed individuals, the accumulation is 20% of the annual income

    • You can contribute an additional Rs.50000 over the statutory deduction for claiming tax exemption of like amount

  3. Save up to Rs.75000 on your tax liability under Section 80D: You can save by purchasing health insurance policies under the relevant section in the following scenarios.

    a. Health Insurance for Yourself and Family:

    • Premium up to Rs.25000 for under 60 years

    • Coverage for children up to 25 years

    b. Health Insurance for Parents:

    • Premium up to Rs.50,000 for senior citizen parents

    • However, the limit is Rs.25,000 if the parents are not senior citizens

    c. Preventive Health Check-up: In addition, Rs. 5000 for a health check-up under each policy

  4. Reduce your tax liability up to Rs. 2 Lakhs under Section 24:

    • You can claim a deduction up to Rs. 2 Lakhs on housing loan interest payment under Section 24 (B)

    • You can claim principal repayment during the financial year under Section 80C

Therefore, you can reduce your tax liability substantially by using the above-described investment avenues. The following grid summarizes the overall permissible amount of Rs.15 Lakhs annual income.

Deduction and Exemptions Available Maximum Amount
Standard Deduction Rs.50000
Section 80C Rs.150000
Health Insurance under Section 80D **Rs.25000
Additional NPS deduction Rs.50000
Interest on Housing Loan Rs.200000
Total Rs.475000
** You can save an additional Rs.50000 by purchasing Health Insurance for Senior Citizen Parents The exemptions apply to the old tax regime only

Computing Comparative Tax Liability On Rs. 15 Lakhs Annual Salary

The tax-saving opportunities described above are indicative. Of course, the IT Act has many more options, but the table represents the standard choices. Accordingly, let us check the impact of deductions up to a more modest Rs.2.5 Lakhs, including the standard deduction of Rs.50000 for an individual earning Rs.15 Lakhs annually.

Old Income Tax Slab Structure New Income Tax Slab Structure
Annual Salary Rs.1500000 Annual Salary Rs. 1500000
Deduction ** Rs. 250000 Deduction Nil
Taxable Income Rs. 1250000 Taxable Income Rs. 1500000
Slab Rates Tax Amount Slab Rates Tax Amount
5% Rs.12500 5% + 10% Rs.12500 + Rs.25000
20% Rs.100000 15% + 20% Rs.37500 + Rs.50000
30% Rs.75000 25% + 30% Rs.62500 + 0
Tax Rs.187500 Tax Rs.187500
Cess @ 4% Rs.7500 Cess @ 4% Rs.7500
Tax Liability Rs.195000 Tax Liability Rs. 195000
** Deduction includes Rs.50000 standard deduction

Points to Note

  • The tax liability under both the slab structures is the same, with a modest tax deduction of Rs. 2.5 Lakhs, using the most common tax-saving investments.

  • So, you can choose either slab structure while filing your ITR for the relevant financial year.

  • However, you can further reduce your tax liability through the old tax slab rates by increasing your deductions beyond Rs.2.5 Lakhs for an annual salary up to Rs.15 Lakhs.

  • On the other hand, tax-saving investments are low-yielding. Consequently, consider the new slab structure while freeing your investible funds for deployment in market instruments to create wealth through higher yields.

In Conclusion

Though the premise for introducing the alternative tax slab structure stands under scrutiny, consider the option carefully before switching. Moreover, the new rate structure is uncomplicated for the taxpayer to understand. In addition, you do not have to look for tax-saving instruments to reduce your tax liability when you can deploy your funds elsewhere and earn handsome returns in the long run. However, it helps as the choice is optional.

FAQ's

  • Q: Do you need to intimate your employer about choosing the new tax slab rates for TDS application on salary?

    Ans: Yes, your employer is responsible for TDS application on salary and can apply the applicable rates upon your intimation.
  • Q: When can you choose the applicable income tax rates for computing your tax liability in a financial year?

    Ans: You can choose the applicable tax slab while filing your ITR for the financial year. However, compute the tax liability under both the slab rates before committing to the beneficial.
  • Q: If you choose the new income tax slab regime, is it necessary to submit Form 12BB to your employer?

    Ans: Since Form 12BB covers your investments during the financial year for applying the exemptions for TDS, it is unnecessary to submit if you choose the alternative tax regime.
  • Q: Is the deadline for filing the ITR identical to the income tax slab rates?

    Ans: Yes, the tentative statutory date for filing ITR for the relevant assessment year is 31 July and identical under both systems.
  • Q: Can you switch between the two income tax slab structures on a year-to-year basis?

    Ans: Yes, you can switch between the income tax slab structures from year to year as it is still optional.
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