How to Save Tax on 9 Lakhs Salary

Updates in New Tax Regime under Union Budget 2024 for FY 2024-25 (2025-26)

The Union Budget 2024 announces few changes in the new tax regime slabs as per the following:

Understanding the Income Tax Regime in FY 2024-2025

The income tax regime in India for FY 2023-2024 (AY 2024-25) offers two options to taxpayers: the old tax regime and the new tax regime:

1. Old Tax Regime:

   • Involves more deductions and exemptions, allowing for potentially lower tax liability.

   • Common deductions include investments under Section 80C (up to ₹1.5 lakh), health insurance premiums, home loan interest, etc.

2. New Tax Regime:

   • Introduced in FY 2020-2021, offers lower tax rates compared to the old regime.

   • No deductions or exemptions are allowed except for minimal standard deductions.

With a salary of Rs. 9 lakhs, you have options in India to potentially reduce your tax liability to “zero” under the Old Tax Regime. Let us have a look at some of the strategies to consider:

Step 1: Choose the Right Regime

The choice between the two regimes depends on your individual income, investment pattern, and expenses.

• Old Regime: Beneficial if you can utilize deductions exceeding the standard deduction of Rs. 50,000.

• New Regime: Consider if you have limited deductions or prefer a simpler filing process.

Step 2: Claim Standard Deduction

• For the FY 2023-24, the standard deduction for salaried individuals is Rs. 50,000 in old tax regime and Rs. 75,000 in new tax regime under Section 16(ia).

• This deduction is available under both the old and new tax regimes in India with a small gap.

• You can claim the standard deduction while filing your Income Tax Return (ITR) electronically or manually.

For Example:

• Total income = Rs. 9 Lakhs

After Claiming Standard Deductions,

• Taxable Income in Old Tax Regime = Rs. 9,00,000 – 50,000

                             = Rs. 8,50,000

• Taxable Income in New Tax Regime = Rs. 9,00,000 – 75,000

                             = Rs. 8,25,000

Step 3: Claim Deduction for Interest Paid Against House Loan

• Utilize Section 24 of the Income Tax Act for Tax Savings:

  • House Rented Out: Claim the entire interest paid on the housing loan as a deduction.

  • House Vacant/Self-Occupied: Claim up to Rs. 2 lakhs interest deduction.

• Conditions for Section 24 Deduction:

  • Availed home loan after April 1, 1999.

  • The loan is used solely for acquiring or constructing a house property.

  • Completion of construction/purchase within 5 years from loan availing.

  • Possession of interest certificate from lender.

• Effect on Taxable Income: Assuming a Rs. 2 lakh deduction on interest paid for the house loan, the taxable income gets reduced to Rs. 7 lakhs.

• Taxable Income under Old Tax Regime at Step 2 = Rs. 8,50,000

After claiming deductions for interest paid on the house loan,

• Taxable Income = Rs. 8,50,000 – 2,00,000

                             = Rs. 6,50,000

Step 4: Claim Deduction under Section 80C of the Income Tax Act

You can utilize the tax deductions available under Section 80C effectively. The popular investment options for salaried individuals to claim deductions of up to Rs. 1.5 lakhs are as follows:

• ULIP (Unit linked Insurance Plans)

• Annuity Plans

• Child Education Plans

• Tax-saving fixed deposits

• PPF (Public Provident Fund)

• EPF (Employee Provident Fund)

• NPS (National Pension Scheme)

• NSC (National Savings Certificate)

• Premiums for life insurance or term insurance are also deductible

• Taxable Income under Old Tax Regime at Step 3 = Rs. 6,50,000

After claiming deductions under Section 80C,

• Taxable Income = Rs. 6,50,000 – 1,50,000

                             = Rs. 5,00,000

Step 5: Claim Deductions on Premium Paid for Health Insurance

• Maximum deduction for self and family: Rs. 25,000

• Additional deduction for parents:

  • Rs. 25,000 if they are not senior citizens

  • Rs. 50,000 if they are senior citizens

• The deduction is available only for health insurance premiums paid for approved health insurance plans.

• You can claim the deduction only if you have filed your Income Tax Return.

• Taxable Income under Old Tax Regime at Step 4 = Rs. 5,00,000

After claiming deductions on payments in health insurance,

• Taxable Income = Rs. 5,00,000 – 50,000

                             = Rs. 4,50,000

Step 6: Claim Rebate under Section 87A

• Eligible taxpayers: Individuals with a total taxable income of Rs. 5 lakh or lower.

• Maximum rebate amount: Rs. 12,500.

• Maximum rebate amount under New Tax Regime as per Budget 2023: Rs. 12,500.

• Maximum rebate amount under New Tax Regime as per Budget 2024: Rs. 25,000.

• Applicable tax regimes: Both old and new tax regimes.

• Taxable Income under Old Tax Regime at Step 5 = Rs. 4,50,000

• Basic Tax Exemption Limit = Rs. 2,50,000

• Total taxable income = Rs. 2,00,000

• Income Tax Slab Rate = 5% for taxable income above Rs. 2.5 lakhs (old tax regime)

• Total tax = 5%  x Rs. 2,00,000 = Rs. 10,000

You can claim a rebate of Rs. 12,500 on your income tax

• Total tax liability = 10,000 tax – (minus) Rs. 10,000 from rebate

• Total Tax Liability = 0

Step 7: Additional Deductions under Old Regime

• House Rent Allowance (HRA): Exemption for rent paid, subject to limits.

• Leave Travel Allowance (LTA): Exemption for travel expenses during leave.

• Section 80C Deductions: Up to Rs. 1.5 lakh for investments in PPF, ELSS mutual funds, ULIPs, etc.

• Section 80D Deductions: Up to Rs. 75,000 for medical insurance premiums for self, family, and dependent parents.

• Other Deductions: Education loan interest, donations, professional tax, etc.