Income Tax on 5 Lakh Salary

The new income tax regime introduced in Budget 2025 has brought significant changes for taxpayers earning Rs. 5 lakh annually. With simplified tax slabs and fewer deductions, this regime aims to make tax filing easier while offering potential savings. For individuals seeking to optimise their finances, understanding these updates is crucial.

Additionally, tools like the Human Life Value (HLV) calculator and products like life insurance plans can help you plan your financial goals effectively. Learn how these changes and smart financial tools can benefit you.

What is the Budget 2025 update on the income tax?

Here is what has changed under the Budget 2025 for taxpayers earning Rs. 5 lakh annually:

• Simplified tax filing process: 

The new regime eliminates the need for multiple deductions, making filing your taxes more straightforward.
 

• Zero tax on Rs. 5 lakh income: 

As per the updated tax slab, individuals earning up to Rs. 5 lakh annually will continue to enjoy tax exemption under the new regime.
 

Key benefits for taxpayers:
 

• Ease of compliance: 

The simplified structure reduces the complexities of tax filing.

• Savings opportunity: 

With fewer deductions, taxpayers can focus on direct savings through investments like life insurance plans.

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While the new tax regime introduces several updates, some aspects remain unchanged:

• Tax exemption on Rs. 5 lakh income: 

Under Section 87A, individuals earning up to Rs. 5 lakh can still claim a rebate and pay zero tax.
 

• Deductions Under Section 80C: 

Investments in life insurance, ULIPs, and other tax-saving instruments remain eligible for deductions under the old regime.
 

For instance, life insurance policies not only provide financial security but also offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act. These deductions can help you reduce your taxable income while securing your family’s future.

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If you earn more than Rs. 10 lakh annually, Budget 2025 has introduced updates that could impact your financial planning:

• Higher standard deduction: 

Salaried individuals can claim a standard deduction of Rs. 50,000, providing additional relief.
 

• Investment Opportunities: 

High-income earners can explore ULIPs (Unit Linked Insurance Plans) for wealth accumulation and tax savings. ULIPs combine the benefits of investment and insurance, making them ideal for long-term financial growth.
 

Why ULIPs are beneficial:
 

• Tax efficiency: 

Returns from ULIPs are tax-exempt under Section 10(10D).
 

• Wealth growth: 

ULIPs offer market-linked returns, enabling wealth accumulation over time.
 

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 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.