Guide On How to Save Tax for Salary Above 10 Lakhs

Income tax is the tax levied on your income in a given financial year. Saving tax is not just about saving some money but saving it in a way that leads to intelligent investments aligned with your long-term financial goals.

Understanding how to save income tax on salary can help you make the most out of your income and get the economic upper hand on your future. So, to help you here, we discuss how to save tax on salary above 10 lakhs. This guide will answer all your questions.

Old vs new tax regime

The amount of income tax that you pay depends on the salary slab that your income falls into. These tax slabs undergo modifications with tax regimes.

And so, there are some differences between the old and new tax regimes. Before understanding how to save tax for salary above 10 lakhs, it is crucial to look at the old and new tax regimes and choose the one that suits you.

Income tax is not just dependent on these salary slabs. Your taxable income is calculated according to the exemptions and deductions you are entitled to. So, it is also necessary to take those exemptions and deductions into account while understanding how to save tax for salary above 10 lakhs.

How to save income tax for salary above 10 lakhs?

Here is how to save tax for salary above 10 lakhs.

#1 Exemptions and deductions

Calculating your taxable salary is the first step in understanding how to save tax for salary above 10 lakhs. Simply put, taxable income is part of your income you must pay income tax on. Your salary may include various tax exemptions and deductions.

Salary – Exemptions = Taxable salary

Taxable Salary – deductions= Net taxable Salary

To know how to save tax for salary above 10 lakhs, consider the following exemptions and deductions.

House Rent Allowance (HRA) 

HRA is the component of your salary that is paid by the employer to help you meet expenses incurred from renting accommodation.

Section 10(13A) of the Income Tax Act 1961 allows tax benefits on HRA. The tax exemption depends on your salary, the city you live in, and the rent amount you pay.

For more information you can check our blog: How to Claim Tax Benefit on House Rent Allowance (HRA)

Leave Travel Allowance (LTA)

LTA helps cover the cost of travel. This is also included in the salary and is paid by the employer. It is eligible for exemption under section 10(5) of the Income Tax Act 1961. All you need are your valid travel documents to avail of this benefit.

National Pension Scheme (NPS)

The Pension Fund Regulatory and Development Authority (PFRDA) administers the NPS, which is governed by the Government of India's Ministry of Finance.

Section 80CCD(1) of the Income Tax Act 1961 allows employees to deduct up to 10% of their salary (primary plus DA), up to a maximum of Rs. 1.5 lakhs annually. In addition to the Section 80C limit, an extra deduction of Rs. 50,000 is available under Section 80CCD(1B).

#2 Employee Provident Fund (EPF) and Public Provident Fund (PPF)

It is crucial to understand the importance of investing in provident funds to know how to save tax for salary above 10 lakhs. There are two types of provident funds you can invest in.

Employee Provident Fund (EPF) is a retirement saving plan for salaried employees that many employers are mandated to maintain. In this case, a contribution from your employer, along with your contribution, is deposited in the account.

It is important to note that EPF has a maturity period. If you withdraw the saved amount before the maturity period, the EPF is liable for tax.

The Public Provident Fund (PPF) is an initiative by the government with attractive interest rates and tax benefits. PPF has a lock-in period of 15 years. However, after a few years, you can withdraw a partial amount and take a loan against the PPF amount. EPF and PPF are eligible for tax deductions under section 80C of the Income Tax Act 1961.

#3 Life insurance 

In addition to securing your family, life insurance also provides tax benefits while paying the premiums and at maturity.

Section 80(C) allows a tax deduction of up to ₹1.5 lakhs per financial year, with life insurance. Apart from that, section 10(10D) also allows tax-free maturity.

#4 Health insurance 

Health insurance is a great option when considering how to save tax for salary above 10 lakhs. Under section 80(D), you can claim a deduction for the premium on health insurance for yourself or your family.

The deduction from health insurance premiums varies on age. If you or your family members are below 60, you can get a deduction of up to ₹25,000. If you or your family members are above 60, you can get a deduction of up to ₹50,000. You can also claim this deduction for your parents.

The maximum deduction you can get if you are below 60 years old and claim it for yourself, your spouse, children, and parents is ₹1 lakh.

#5 Charitable donations

Charitable donations are another answer to- how to save tax for salary above 10 lakhs. Donations to charitable institutions can help reduce income tax under section 80G of the Income Tax Act 1961.

The charitable institutions registered under section 80G can facilitate a 50% - 100% tax reduction of the amount donated. This means complete or half of the donated amount is eligible for tax deduction.

Final thoughts

Understandinghow to save tax for salary above 10 lakhs not only helps in reducing tax liability but also in long-term financial planning.  But when it comes to making the most out of your hard-earned money, in addition to learning how to save tax for salary above 10 Lakhs, you also need to partner with a reliable financial institution, such as Tata Capital.

With Tata Capital, you can streamline your financial needs and give wings to your dreams.

Visit the Tata Capital website today!