How to Save Tax on 9 Lakhs Salary

It is stressful to let taxes eat up your hard-earned money. This article will help you discover smart strategies on how to save tax on Rs. 9 lakhs salary, maximize deductions, and keep more cash in your pocket.

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Understanding the Income Tax Regime in FY 2023-2024

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 under Section 16(ia).

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

  • 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 = Rs. 9,00,000 – 50,000

                             = Rs. 8,50,000

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 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 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

Invest & Save upto ₹46,800 per annum in taxInvest & Save upto ₹46,800 per annum in tax

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 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.

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

  • Taxable Income 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 6: 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.

FAQ's

  • How to save tax on 10 lakh income?

    Some of the general tips for saving tax on a Rs. 10 lakh income are as follows:
    • Maximize deductions under sections like 80C, 80D, etc.: Invest in options like PPF, ELSS mutual funds, medical insurance, etc., to claim deductions on your taxable income.

    • Claim HRA exemption: If you pay rent, you can claim an exemption on your House Rent Allowance received from your employer.

    • Opt for the right tax regime: Carefully compare the old and new tax regimes based on your income and investment profile to choose the one that minimizes your tax burden.

  • Which tax regime is better for 9 lakhs CTC?

    Both regimes have their pros and cons. Here is a quick overview:
    • Old regime: Offers more deductions and exemptions, potentially leading to lower tax liability if you can utilize them effectively. However, the tax rates are higher.

    • New regime: Lower tax rates but fewer deductions and exemptions. Simpler to calculate taxes but might not be as beneficial if you have many deductions.

  • What is the standard deduction of ₹50,000 used for?

    This deduction automatically reduces your taxable income by ₹50,000, regardless of any other deductions you claim.
  • When is the last date to file my income tax return?

    For individuals whose accounts are not audited, the due date for FY 2023-24 (AY 2024-25) is July 31, 2024.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

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