Optimising taxes for a salary above Rs. 5 lakh requires strategic planning. Here are actionable methods to save tax:
1. Investments under Section 80C
Invest in tax-saving instruments like life insurance policies, ULIPs, or Public Provident Fund (PPF). These investments are eligible for deductions up to Rs. 1.5 lakh annually.
2. Health insurance premiums
Premiums paid for health insurance policies qualify for deductions under Section 80D. You can claim up to Rs. 25,000 for yourself and an additional Rs. 50,000 for senior citizen parents.
3. Critical illness riders
Add critical illness riders to your life insurance policy to secure your health and claim tax benefits simultaneously.
4. Retirement plans
Invest in retirement-focused plans like ULIPs or pension schemes to build a corpus while enjoying tax benefits.
Income tax slabs under old vs new income tax regime
Let’s break down the difference between the old and new tax regimes so you can decide what works best for you. Both come with their own set of slabs and benefits.
Old regime: Ideal for those claiming deductions
0 – Rs. 2.5 lakh: No tax
Rs. 2.5 lakh – Rs. 5 lakh: 5%
Rs. 5 lakh – Rs. 10 lakh: 20%
Above Rs. 10 lakh: 30%
You can claim deductions like Section 80C (up to Rs. 1.5 lakh), HRA, home loan interest, LTA, etc.
New regime: Lower tax, fewer deductions
0 – Rs. 3 lakh: No tax
Rs. 3 lakh – Rs. 6 lakh: 5%
Rs. 6 lakh – Rs. 9 lakh: 10%
Rs. 9 lakh – Rs. 12 lakh: 15%
Rs. 12 lakh – Rs. 15 lakh: 20%
Above Rs. 15 lakh: 30%
Fewer exemptions/deductions allowed (only a handful like NPS employer contribution, EPF, and standard deduction).
Which to choose?
Go with the old regime if you claim multiple deductions and investments. Choose the new regime if you don’t claim many exemptions and want simpler tax filing with potentially lower tax.
How to save tax on Rs. 5 lakh salary?
Now that you know the tax slabs, let’s look at smart ways to save taxes if your salary is Rs. 5 lakh per year.
Use section 80C fully:
Invest in ELSS funds, PPF, LIC premiums, or EPF to claim up to Rs. 1.5 lakh deduction.
These options help lower taxable income effectively.
Opt for standard deduction
You automatically get a Rs. 50,000 standard deduction on salary—no documentation needed.
Claim HRA if you are renting
If you live in a rented house and get HRA, you can claim exemption based on rent paid and city of residence.
Use 80D for health insurance
Premiums for health insurance (for you and your family) are eligible for deduction up to Rs. 25,000 under Section 80D.
Take advantage of Section 10(14) allowances
Reimbursements like telephone bills or internet charges provided by your employer may be partially tax-exempted.
Choose the right regime
If you claim deductions, the old regime could result in zero tax after rebates (like Section 87A for income up to Rs. 5 lakh).
With these options, you can save on taxes smartly while making useful financial decisions.
Conclusion
Planning your taxes for a Rs. 5 lakh salary under the new regime is simpler than ever. By leveraging tax-saving tools like life insurance policies and ULIPs, you can not only reduce your taxable income but also secure your financial future.
Life insurance is more than just a tax-saving instrument—it is a comprehensive financial tool that protects your family and helps you achieve long-term goals.
By integrating smart tax-saving strategies and leveraging life insurance products, you can simplify your tax planning while securing your financial future. Explore Bajaj Finance Insurance Mall to find tailored plans that suit your goals.
