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How to Save Tax for Salary above 15 Lakhs in India?

Tax Saving

Finance Minister Nirmala Sitharaman announced the new tax regime in Budget 2020 giving taxpayers the option to choose between it and the existing tax structure when they file their taxes. While your income will be taxed at lower rates as per the new tax slab, there is a catch. You will no longer be able to utilise the deductions under the Income Tax Act as earlier, to lower your tax liability any further.

As per government estimates, 5.3 crore tax payers out of a total of 5.78 crores claim tax exemptions amounting to less than Rs 2 lakh. The most popular of these include investments in Public Provident Fund, life insurance plans, tax-saving fixed deposits etc most of which fall under the Rs 1.5 lakh maximum limit provided as per Section 80C.

How to Save Tax for Income above Rs. 15 Lakhs?

An additional tax benefit is available for contributions of upto Rs 50,000 to National Pension scheme as per 80CCD(1B) provisions taking the total to Rs 2 lakh. However, if you fall in the higher tax bracket and are looking forward to tax saving for income above Rs.15 lakhs as you get ready to fill your income tax return for FY 2019-20, here are a few things to keep in mind:

1. If you do not invest in tax-saving instruments

In her budget speech, the Finance Minister explicitly stated that a person with an annual income of Rs 15 lakh not availing any deductions as per the proposed tax structure will have to pay only Rs 1.95 lakh as tax as opposed to Rs 2.73 lakhs in the old regime. To achieve this, you have to let go of tax benefits elucidated under Chapter VI A of the Income Tax rules as well as the standard deduction of Rs 50, 000 for FY 2019-20. New tax rules allow for greater tax saving for income above 15 lakhs in this case, as illustrated below.

Old Tax Structure Tax Calculation New Tax Structure Tax Calculation
5% 12,500 5% + 10% 12,500 + 25,000
20% 10,000 15% + 20% 37,500 + 50,000
30% 15,00,00 25% +30% 62,500 + 0
Total (1+2+3) 2,625,00 Total (1+2+3) 187500
Cess (4%) 10,500 Cess (4%) 7500
Income Tax 273000 Income Tax 195000

2. If you invest up to 1.5 lakh

If you have invested in Public Provident Fund, Employees Provident Fund, Sukanya Samriddhi Scheme, life insurance or health insurance premium, tax-saving fixed deposits from banks or post offices or any other provisions that allow tax exemption to the tune of Rs 1.5 lakh, you would still stand to lose Rs 31,200 in tax saving for income above 15 lakhs by following the old school tax paying method. The new tax regime would work in your favour even in this case. It allows you to claim tax benefit on income from life insurance and agriculture, proceeds from voluntary retirement scheme, rent paid, encashing your leaves on retirement and compensation due to company downsizing.

3. If you avail deductions worth 2.5 lakh or more

If your annual income is between 15 lakhs to 20 lakhs and you claim tax deductions worth 2.5 lakh, you have the option to choose between either of the two regimes since the tax payable will be more or less the same. However, if you are focussed on tax saving for income above 15 lakhs and the amount of exemption in tax sought by you is more than 2.5 lakhs, it is prudent to stick to the old method of tax computation. Let us understand this by looking at tax computation by both methods for a person drawing an yearly salary of Rs 20 lakhs.

Tax Calculation for Annual Income of 20 Lakhs - Old Regime vs New Regime

Details Tax Calculation (Old) Tax Calculation (New)
Salary Drawn 20,00000 20,00000
Standard Deduction 50,000 NIL
Income under Salary 19, 50000 20,00000
Chapter VI A Exemptions 150000 Nil
Taxable Income 17,50000 20,00000
Income Tax 3, 37, 500 3, 37,500
4% Cess 13, 500 13,500
Tax Payable 3,51,000 3,51,000

How to Save Tax for a Salary Above Rs 10 Lakhs?

As your income grows so does your tax liabilities. Fortunately, Indian Income Tax Laws allow multiple ways to reduce your tax liability. One of the most effective and beneficial ways of saving your taxes is through tax-saving investments.

So, how do you save tax for a salary above Rs 10 Lakhs? Here’s a list of investments that will help you save tax while you build a stronger future for your family:

1. Reduce Your Taxable Income by Up To Rs 1.5 Lakhs (Section 80C, 80CCC, 80CCD)

a) Financial Protection Investments

  • Term Insurance Plans
  • Life Insurance Plans

b) Invest for Long-Term Goals & Retirement

  • Unit Linked Insurance Plans (ULIPs)
  • Pension or Annuity Plans from Life Insurance Companies
  • Public Provident Fund (PPF) & Employee Provident Fund (EPF)
  • New Pension Scheme Tier-I Account
  • Senior Citizen Savings Scheme
  • Buy a house property – Registry and home loan principal repayments

c) Invest for Your Child’s Future

d) Protect Your Wealth from Inflation & Market Trends

  • 5-Year Tax-Saving Term Deposit
  • Endowment & Money Back Plans
  • National Savings Certificate (NSC)

2. Additional Reduction of Up To Rs 50,000 for NPS Investors (Section 80CCD

a) The maximum deduction available on self-contribution to NPS Tier-1 account is limited to:

  • 10% of annual income for salaried investors
  • 20% of annual income for self-employed investors

b) You can contribute an additional amount for a deduction of up to Rs 50,000 a year

3. Reduce Your Taxable Income by Up To Rs 75,000 (Section 80D)

a) Health insurance for yourself and your family

  • Reduces your taxable income by up to Rs 25,000 if you are below 60
  • Includes preventive health check-up expenses of up to Rs 5000
  • Cover your children below 25 years of age under the same plan

b) Health Insurance for your parents

  • Reduce your taxable income by up to Rs 50,000 more if parents are 60 or above (Rs 25,000 for below 60)
  • You can claim medical expenses as well for senior citizen parents
  • Include preventive health check-up expenses of up to Rs 5000

4. Reduce Your Taxable Income by Up To Rs 2 lakhs (Section 24)

a) If you bought or constructed a home using a home loan the principle and interest payment on the loan allows for a tax deduction

b) Interest payments up to Rs 2 lakhs deductible under section 24B

c) Principal repayment can be claimed under section 80C

Two Frequently Asked Questions to Save Tax for Salary above 15 Lakhs in India

1. How can I save tax if I earn 15 lakh?

From the above table, you can easily see that you can claim various deductions on your salary income. Now, you can save tax if you earn a salary of Rs 15 lakhs, here’s a table that will show you how to save tax for a salary above 15 lakhs:

Deductions to be claimed Available Deduction (₹)
Standard Deduction 50,000
Investments u/s 80 C 150,000
Medical insurance premium u/s 80 D 25,000
Additional Deduction on NPS* 50,000
Home loan interest 200,000
Total 475,000

From above, you can see that if your income is Rs 15 LPA, you can claim various deductions from taxable income up to Rs 4.85 lakhs.

Note: You can avail of the deductions and exemption only if you opt for the old tax regime. These deductions and exemptions are not available in the new tax regime.

2. How much tax do I pay on 15 lakhs?

Here is the table showing how much tax do have to pay on Rs 15 lakhs income if you opt for old and new tax regimes:

Note: The deductions and exemptions are not available in the new tax regime.

Category Old Tax Regime (₹) New Tax Regime (₹)
Income 15,00,000 15,00,000
Deductions 4,85,000 0
Taxable income 10,15,000 15,00,000
Income tax 117,000 188,000
Add: Cess 4680 7500
Net Tax liability 121,680 195,500

The best way to save tax for a salary above 15 lakhs is to opt for the old tax regime and claim all the available deductions and exemptions on tax-saving investments.

Alternatively, you can follow the new tax regime to file your income tax return. However, once selected you cannot claim any carried forward losses or deductions on tax-saving investments.

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