How to Save Tax on Salary of 50 Lakhs and Above?

Saving tax on 50 lakhs salary and above in India is important for optimising financial outcomes. By leveraging deductions, exploring investment avenues, and understanding tax regimes, individuals can significantly reduce their tax liabilities while maximising savings and investments.

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What is the Old Tax and the New Tax Regime?

The Indian income tax system offers two regimes: the Old Tax Regime and the New Tax Regime. Each has its own set of rules and benefits, catering to different taxpayer needs.

  1. Old Tax Regime:

    • A traditional system with multiple tax slabs and numerous deductions and exemptions like investments, medical expenses, house rent allowance, etc.

    • Offers flexibility in tax planning by allowing you to claim deductions and lower your taxable income.

    • Can be advantageous for high earners with significant investments as deductions reduce tax liability.

  2. New Tax Regime:

    • Simplified system with fewer tax slabs and no deductions or exemptions allowed.

    • Offers lower tax rates compared to the old regime.

    • Makes tax filing easier due to its streamlined approach.

    • However, the lack of deductions can be disadvantageous for high earners and those with substantial investments, potentially leading to a higher tax bill.

Tax Rates and Deductions Under the Old Tax Regime

The tax rates under the Old Tax Regime:

Income Range Tax Rate
Up to ₹2.5 lakhs Nil
₹2.5 lakhs to ₹5 lakhs 5%
₹5 lakhs to ₹10 lakhs 20%
₹10 lakhs to ₹15 lakhs 30%
₹15 lakhs to ₹20 lakhs 30%
Above ₹20 lakhs 30%

The deductions that were included under the old tax regime are as follows:

  1. Under Section 80C

    • Deduction for investment in life insurance premiums.

    • Deduction for interest on home loan.

    • Deduction for investment in public provident fund.

    • Deduction for tuition fees for children's education.

    • Deduction for investment in equity-linked savings schemes.

    • Deduction for investment in National Saving Certificate.

  2. Other Sections

    • Standard deduction of ₹50,000

    • Deduction for investment in pension schemes under Section 80CCD(1) and Section 80CCD(1B)

    • Deduction for medical insurance premium under Section 80D

    • Deduction for donation to certain charitable institutions under Section 80G

    • Deduction for investment in infrastructure bonds under Section 80CCF

    • Deduction for investment in a savings account in the post office under Section 80TTA

    • Deduction for interest on savings account under Section 80TTA

Tax Rates and Deductions Under the New Tax Regime

The tax rates under the new tax regime are: 

Income Range Tax Rate
Up to ₹3 lakhs Nil
₹3 lakhs to ₹6 lakhs 5%
₹6 lakhs to ₹9 lakhs 10%
₹9 lakhs to ₹12 lakhs 15%
₹12 lakhs to ₹15 lakhs 20%
Above ₹15 lakhs 30%

The deductions under the new tax regime are:

  • Standard deduction of ₹50,000

  • Deduction for employer's contribution to NPS account under Section 80CCD(2)

  • Deduction for additional employee cost under Section 80JJA

  • Deduction for interest on a home loan on the let-out property under Section 24

  • Deduction for family pension income under Section 57(iia)

  • Deduction for the amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

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

Which Tax Regime is Better?

Choosing the right regime depends on your income, investment habits, and preferred level of complexity. Analysing your situation and comparing tax liabilities under both regimes is important for making the best decision.

For many individuals, the old tax regime holds advantages over the new one. Familiarity plays a key role, as people are more familiar with its workings and can plan their finances accordingly. Moreover, the old regime offers more deductions and exemptions, resulting in greater tax savings for taxpayers. Investment avenues such as EPF and PPF also provide better benefits under the old regime compared to the new. 

Opting for the new tax regime could be more suitable if you have limited investments and don't qualify for many deductions.

How Do You Save Taxes Above 50 Lakhs in Annual Salary?

Saving tax on salaries above 50 lakhs in India requires a strategic approach. Here are some key avenues to explore:

  1. Maximize Exemptions and Deductions:

      • Section 80C: Utilize the full ₹1.5 lakh limit with options like PPF, ELSS mutual funds, NPS Tier-I contributions, tuition fees, etc.

      • Health Insurance: Claim deductions for premiums paid for yourself, spouse, and dependent parents under Section 80D (up to ₹75,000). Individuals under 60 years old have a maximum deduction limit of ₹25,000, while senior citizens have a higher limit of ₹50,000.

      • Home Loan: Enjoy triple benefits - interest deduction (Section 24B), principal repayment deduction (up to ₹1.5 lakh), and exemption on rental income if used for self-occupation.

      • House Rent Allowance (HRA): Claim exemption on HRA as per prescribed limits based on your city and salary.

    The exemption is granted based on the least of the following three amounts:

      • Actual HRA received,

      • 50% of your salary (if residing in a metro city) or 40% (if in a non-metro city),

      • Rent paid to exceed 10% of your salary.

    • Leave Travel Allowance (LTA): Utilize LTA benefits for travel expenses or encashment as per exemption rules.

  2. Additional Strategies:

    • National Pension System (NPS): Invest up to ₹50,000 in NPS Tier-1 for additional deduction (over and above Sec 80C limit).

    • Charitable Donations: Donate to eligible institutions under Section 80G for 50% or 100% deduction (depending on the cause).

    • Education Loan Interest: Claim deduction on interest paid for higher education loans of yourself, spouse, or children (Section 80E).

    • Electric Vehicle Loan: Avail deduction on interest paid for loans to purchase electric vehicles (up to ₹1.5 lakh per year).

How to Plan Your Taxes for Income Above 50 Lakhs?

  1. Tax Deductions

    When planning tax strategies for an income exceeding 10 lakhs, you become eligible for deductions on the following items:

    Deductions  Limits and Eligibility
    Health Insurance Premium (Section 80D) Self, spouse, and dependent children: ₹25,000
    Parents: ₹25,000
    If aged 60 and above: ₹50,000
    Education Loan Interest (Section 80E) Interest deductible for 8 years after repaying higher education loan.
    Charity Donations (Section 80G) Eligible amount: 50% or 100%
    Tax-saving Investments (Section 80C) Tax benefits up to ₹ 1,50,000 per year. Options include EPF, PPF, ELSS, home loan, NSC, and more.
    Costs for Disabled Dependents (Section 80DD) 40% disability: ₹ 75,000
    80% disability: ₹ 1,25,000
    Home Loan Payments (Principal and Interest) Principal: Up to ₹ 1.5 lakhs (Section 80C)
    Interest: Up to ₹ 2 lakhs (Section 24b)
    Life Insurance Maturity Amount (Tax Exempt) Maturity proceeds tax exempt if sum assured is - 20% (policies issued before 1 April 2012)
    15% (policies issued after 1 April 2013 for individuals with disability or disease)
    10% (policies issued after 1 April 2012)
  2. Tax Exemptions

    You can identify the components of your salary within the CTC, as mentioned below:

    Components of Salary Taxability
    Basic Salary Entirely taxable
    Dearness Allowance (DA) Entirely taxable
    House Rent Allowance (HRA) Exempt up to a specified limit
    Leave Travel Allowance (LTA) Actual travel expenses exempt for 2 trips in 4 years under 10(5)
    Reimbursement for Mobile/Internet Exempt if primarily used for office purposes, with valid proofs/bills submitted
    Child’s Education and Hostel Allowance Up to ₹4800 per child (maximum 2 children)
    Food Allowance Up to ₹50 per meal (maximum 2 meals a day); Annual limit: ₹31,200 (50226 days * 12 months)
    Standard Deduction Fixed deduction of ₹50,000 (Applicable without restrictions)
    Professional Tax ₹2,400 (Varies based on state regulations)

    Points to Remember:

    • Consult a tax advisor for personalised recommendations based on your specific circumstances.

    • Stay updated on the latest tax rules and amendments.

    • Long-term financial goals should influence your investment choices.

    • Timely tax planning and proactive action are key to maximising your savings.

Income Tax Calculator

An Income Tax Calculator is a tool designed to help individuals or businesses estimate the amount of income tax they owe to the government based on their taxable income, deductions, and other relevant financial factors. Income Tax Calculator helps taxpayers plan their finances and ensure they are prepared to meet their tax obligations.

Conclusion

Saving taxes on an income above 50 lakhs requires strategic planning and smart use of available provisions. Understand regime options, maximise deductions, explore avenues, and seek professional advice to reduce tax liability and optimise finances. With a proactive approach, you can manage taxes effectively.

FAQ's

  • How can I maximise deductions to reduce my tax liability?

    Utilise the full limit of Rs. 1.5 lakh under Section 80C with options like PPF, ELSS mutual funds, NPS Tier-I contributions, children's tuition fees, etc. Claim deductions for health insurance premiums (Section 80D), home loan interest (Section 24B), and HRA exemption, as applicable. Explore additional avenues like charitable donations (Section 80G) and education loan interest deductions (Section 80E).
  • Do I need a tax advisor for income above 50 lakhs?

    Consulting a tax advisor is highly recommended. They can analyse your specific financial situation, suggest the most effective tax-saving strategies, and ensure compliance with the latest regulations. Their expertise can save you time, money, and potential tax headaches.
  • What are some common tax planning mistakes to avoid?

    Rushing into decisions without understanding both regimes, making last-minute investments solely for deductions, neglecting long-term financial goals, and ignoring updates in tax rules can all lead to suboptimal tax planning. Seek professional guidance and maintain a proactive approach throughout the year.

*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
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