Here’s how to maximise tax savings on salary above ₹10 lakh

It’s that time of the year when you need to gather all your tax saving proofs and other relevant documents for filing your income tax return (ITR). The deadline for filing ITR for FY 2023-24 (AY 2024-25) for the individual taxpayers, who don’t need tax audit, is July 31.

As you prepare to file your ITR, it’s also advisable to plan the financial strategy to maximise tax savings as the new financial year 2024-25 has just started. An effective tax saving strategy and a financial roadmap can help you save a significant amount on your income tax outflow. For salaried individuals, apart from the PPF deductions, there are many other options which can help in bringing down the income tax burden.

If you earn ₹10 lakh or more annually, navigating the income tax landscape could be complex. One of the steps in understanding this complexity is to consider both the old and new income tax regimes to comprehend your tax obligations effectively.

Choose carefully between old and new tax regimes

It’s important to note that from FY 2023-24 the new tax regime has become the default regime. If you don’t opt for the old tax regime your ITR will be filed under the new tax regime.

While the new tax regime offers a reduced tax rate, several deductions and exemptions available under the old tax regime can’t be availed. On the other hand, the old tax regime lays out higher tax rates but with a series of exemptions and deductions.

So, if you have enough tax saving investments, choosing the old tax regime could be an ideal option.

Certain exemptions eliminated in new regime

So now, assuming you fall in ₹10 lakh salary bracket and above, in the old regime, you would incur a 30% tax, while the new regime levies only 20%.

Under the new regime, many exemptions and deductions aren’t applicable, resulting in higher taxable income.

This includes exemptions on components like house rent allowance (HRA), leave travel allowance (LTA), 80C, 80D, and others. As a result, taxpayers must navigate these changes thoughtfully to implement tax planning strategies effectively.

Under the old income tax regime, with a ₹10 lakh salary, you can even reduce your taxable burden to zero. Here’s how:

• Standard deduction: ₹50,000.
• Health insurance premiums (Under Section 80D): Up to ₹25,000 for self, spouse, and dependent children; ₹25,000 for parents (₹50,000 if aged 60 and above).
• Higher education loans (Under Section 80E): Interest is deductible for eight years starting from the year of repayment for higher education of self, spouse, dependent children, or a student under your legal custody.
• Charitable donations (Under Section 80G): 50% to 100% of the qualifying amount.
• Deduction under Section 80C of up to ₹1,50,000 Options include Life Insurance Premium, Provident Fund, National Savings Certificate, Equity-Linked Savings Scheme (ELSS), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), 5-year Fixed Deposit, and more.
• Treatment expenses for disabled dependents (Under Section 80DD): Up to ₹75,000 for 40% disability, ₹1,25,000 for 80% disability, for dependents with disabilities.
• Home loan deductions: For the principal amount (Under Section 80C), deduction allowed is up to ₹1.5 lakh. On interest amount (Under Section 24b), the deduction allowed is up to ₹2 lakh. Under Section 80EE, deduction of up to ₹50,000 for interest paid on home loans for first-time home buyers.
• Deduction under Section 80TTA: Up to ₹10,000 for interest paid on savings account.
• Deduction for LTA (Leave Travel Allowance): ₹40,000.
• Deduction for HRA (House Rent Allowance): ₹1,50,000.
• Deduction for any reimbursement: ₹24,000.

By maximising these deductions effectively, it is possible to reduce your taxable income to even zero under the old income tax regime, ensuring maximum savings.