In India, the Income Tax Department levies income tax on individuals as per the tax bracket applicable to them. Thus, taxpayers continue to find ways so that they do not have to pay income tax at all. However, salary optimisation does not come to their benefit. As a consequence of this, there is an increase in their tax obligations, as well as their income.
In this case, online term insurance plans and other tax-saving instruments may be used for some much-needed relief. Also, It is believed that making tax-saving investments is the best and one of the most effective ways to reduce the tax burden. This is the ultimate guide if you’re looking to save taxes on income of Rs. 10 lakh or above.
Here’s How You Can Reduce Income Tax On A Salary Of 10 Lakhs
To get more significant savings on income tax for a salary of 10 lakhs, you need to be aware of your wage structure.
Salary recipients are eligible for several subsidies and tax breaks. Taxable income is the portion of pay that is liable to taxation and is not exempt in any way. As a result, the wage component of your compensation may also include other tax-free advantages. The remainder of your wage will therefore be your taxable income.
Hence, maximising your tax deductions and exemptions might lessen your tax burden.
Everything You Need To Know About Salary Exemptions Allowed As Per Income Tax
The basic salary of an individual is entirely taxable, and so is DA (dearness allowance). Tax exemption is allowed to a certain point for HRA (House Rent Allowance). Also, The exemption is permitted on the cost of tickets for two trips in four years for LTA (Leave Travel Allowance).
Education Allowance is provided to taxpayers for their children at Rs. 4800 per child, which is permitted for 2 children only. Rs.50 of Food Allowance is permitted on two meals at the most, each day. In addition, Rs. 50,000 standard deduction is allowed to every taxpayer without any form of restrictions. Professional tax varies from one state to the other, but it is typically around Rs. 2,400.
Other Deductions Allowed as Per Income Tax Regulations
You can also avail of several other deductions on your salary based on income tax guidelines. These include the following:
1) Health Insurance Policy Premium:
Tax deductions of Rs. 25,000 are applicable under Section 80D for health insurance coverage for you, your spouse, and any dependent children. However, You may get Rs. 50,000 as tax deductions if you are paying premiums for your parents (who are senior citizens).
2) Higher Education Loan:
However, The interest on loans obtained against the higher education of you, your dependent children, spouse or even any student for whom you have custody is deductible for eight years starting in the year of repayment.
3) Investments:
A Rs. 150,000 tax deduction per year is provided under Section 80C. These include EPF (Employees Provident Fund), ELSS (Equity Linked Savings Scheme), PPF (Public Provident Fund), SSY (Sukanya Samriddhi Yojana), tax-saver Fixed Deposits, NSC (National Savings Certificate), as well as other options like life insurance premiums under Section 80C.
4) On The Treatment Expenses Of Disabled Dependents:
If there is a person with disabilities dependent on you, for whom you pay medical expenditures, you are eligible for tax relief of Rs. 75,000 on a 40% disability and Rs. 1,25,000 on an 80% disability.
5) Home Loans:
Principal repayment deductions are allowed on a maximum of Rs. 1.5 lakhs as per Section 80C, and interest deductions of a maximum of Rs. 2 lakhs are allowed as per Section 24B.
In conclusion, if you have any of these investments at the moment, the best strategy to lower your tax burden for an income of/beyond Rs. 10 lakhs is to choose the old tax system and use all available deductions and exemptions for tax-saving investments. You may think of the new tax regime, which now offers zero taxes up to Rs. 7 lakh as per the latest Government announcement. However, there are no other deductions applicable to the same. Hence, you should look at the old tax regime for maximising your tax deductions from investments.
Conclusion:
You can naturally use your home loan and other investments to significant effect for maximising your tax deductions. Term insurance is also a basic necessity that will help you financially secure your family while obtaining handsome tax deductions under Section 80C for premium payments. Know the meaning of term insurance and its key benefits in this regard. If you are investing in ULIPs for life coverage and investments alike, you can also avail of the same tax deductions up to Rs. 1,50,000. Use these options wisely and chalk out the best possible tax-saving strategy after examining your salary and its components as a starting point.