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How to save tax for salary above 15 lakhs

How to save tax for salary above 15 lakhs

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, tax –saving fixed deposits etc most of which fall under the Rs 1.5 lakh maximum limit provided as per Section 80C.

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 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:

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

5%

20%

30%

Total(1+2+3)

Cess(4%)

Income tax

Tax calculation

12, 500

1,0000

150000

262500

10,500

2,73000

New tax structure

5%+ 10%

15%+20%

25%+30%

Total(1+2+3)

Cess(4%)

Income tax

Tax calculation

12,500+ 25,000

37,500+50,000

62,500+ 0

187500

7500

1,95000


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.

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

Details

Salary drawn

Standard deduction

Income under salary

Chapter VI A exemptions

Taxable income

Income tax

4% cess

Tax payable

Tax calculation(Old)

20,00000

50,000

19, 50000

150000

17,50000

3, 37, 500

13, 500

3,51,000

Tax calculation(New)

20,00000

Nil

20,00000

Nil

20,00000

3, 37,500

13,500

3,51,000


Now that you know the best way of tax saving for income above 15 lakhs, you can opt for iSelect Star Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance, that not only offers your family financial security at affordable rates but also comes with tax benefits. Choose from whole life cover or increasing cover with age, premium payment and maturity benefit options as per your needs

Additional riders such as benefits for accidental death, child support and others are also available inbuilt in the plan for increased protection. So secure the future of your family today and opt for iSelect+ term plan to ensure they can achieve all the goals in their life.

Speak to an insurance specialist now!

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