In the 2023-24 budget, the government of India introduced significant tax reforms, notably offering tax rebates on income up to Rs. 7 lakhs under the new tax regime. This essentially means that taxpayers with incomes below Rs. 7 lakhs will pay “no tax”.
However, if your salary exceeds Rs. 7 lakhs, there are still various strategies to minimise your tax liability under both the old and new regimes. You can claim deductions available u/s 80C by investing in tax-saving instruments like the National Pension System (NPS), Tax-saving fixed deposits (FDs), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and more.
Additionally, you can consider health insurance premiums (Section 80D) and home loan interest payments (Section 24) for further deductions. Let us learn how to save tax for a salary above Rs. 7 lakhs in detail.
How to save tax if you have an annual salary of above Rs. 7 lakh?
It is essential to note that the new regime came into effect from April 1, 2023. Now, you have the option to calculate taxes under either of the old or new tax regimes.
For example:
- Say your gross salary is Rs. 7,50,000
- You now have the option to choose the new tax regime
- Under it, there is “no tax liability” on taxable income up to Rs. 7,50,000
- This means you pay zero taxes even without claiming any deductions or exemptions
Being a straightforward approach, it simplifies the tax process by eliminating the need to track and claim deductions.
Tax slabs under old vs new tax regime
While filing income tax returns, you can opt for either of the old and new regimes. Check out the different income tax slabs for FY 24-25 offered under them:
Tax slab |
FY 2023-24 (under the old tax regime) |
Tax slab |
FY 2023-24 (under the new tax regime) |
Up to Rs. 2,50,000 |
Nil |
Up to Rs. 3,00,000 |
Nil |
Rs. 2,50,000 to Rs. 5,00,000 |
5% |
Rs. 3,00,000 to Rs. 6,00,000 |
5% |
Rs. 5,00,000 to Rs. 10,00,000 |
20% |
Rs. 6,00,000 to Rs. 9,00,000 |
10% |
Rs. 10,00,000 and above |
30% |
Rs. 9,00,000 to Rs. 12,00,000 |
15% |
- |
- |
Rs. 12,00,000 to Rs. 15,00,000 |
20% |
- |
- |
Rs. 15,00,000 and above |
30% |
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Tax savings under the new regime (FY 2024-25)
The new tax regime provides lower tax rates and offers several exemptions and deductions (comparatively fewer than the old regime). Also, if your total income is up to Rs. 7 lakhs, you can claim a rebate under Section 87A to nullify your tax liability. This means that effectively, individuals earning up to Rs. 7 lakhs will pay no tax.
Now, let us look at some key deductions:
- Standard deduction
- The new regime has a standard deduction of Rs. 50,000 for salaried employees.
- This is automatically applied, reducing your taxable income by Rs. 50,000.
- Transport allowance
- Exemption for handicapped employees up to Rs. 3,200 per month
- Daily allowance
- Allowance given to cover daily expenses during official travel is exempt from tax
- Section 80CCD(2)
- Contributions made by your employer to the National Pension System (NPS) are deductible up to 10% of your salary (basic + dearness allowance)
- Section 80CCH
- Contributions to the Agniveer Corpus Fund are deductible
- Section 57(iia)
- A standard deduction of Rs. 15,000 or one-third of the family pension received, whichever is lower, is available for individuals receiving a family pension
- Exemption on voluntary retirement (Section 10(10C))
- Amounts received under voluntary retirement schemes are exempt from tax up to Rs. 5,00,000
- Leave encashment (Section 10(10AA))
- Leave encashment received at the time of retirement is exempt up to certain limits for government and non-government employees
- Interest on home loan for let-out property (Section 24)
- Interest paid on a home loan for a let-out property can be deducted from your taxable income without any upper limit
- Transport allowance for specially-abled persons
- Transport allowance up to Rs. 3,200 per month is exempt for specially-abled employees
- Conveyance allowance
- Allowance received to meet conveyance expenses incurred as part of your employment is exempt from tax
- Travel compensation
- Compensation received to meet the cost of travel on official tours or transfers is exempt from tax.
Also read about: What is long term capital gains tax?
Tax savings under the old regime tax (FY 2024-25)
Under the old tax regime, taxpayers have greater flexibility to avail themselves of a wide range of deductions and exemptions provided by various sections of the Income Tax Act. Let us see some key options:
Section 80C
- Get an overall deduction of up to Rs. 1.5 lakh by making investments in various tax-saving instruments like
- Tax-saving fixed deposits
- PPF
- NSC
- ELSS
- Life insurance premiums
- Home loan principal repayment, and more
Section 80CCD
- Provides an additional exemption of Rs. 50,000 for investments in the National Pension Scheme (NPS).
Section 80D
- Allows tax deduction on health insurance premium payments made for self or parents.
Section 80TTA
- Offers a deduction on savings account interest.
Section 80G
- Allows deductions for donations made to charitable organisations up to 50% or 100% of the amount donated
Professional Tax Deduction under Section 16
- Provides deductions for professional tax payments
Exemption under Section 10
- Includes allowances such as
- House Rent Allowance (HRA)
- Relocation Allowance
- Leave Travel Allowance (LTA), and
- Mobile Reimbursement.
Which regime is better for 7 Lakh LPA to save tax?
To determine in which regime your tax liability is the lowest, you have to calculate taxes under both of them. For your easy understanding, we have made a comparison below:
|
Particulars |
Total taxable income - Old regime (in rupees) |
Total taxable income - New regime (in rupees) |
a) |
Income under the head salary |
7,00,000 |
7,00,000 |
b) |
Less: Standard deduction u/s 16 (ia) |
50,000 |
50,000 |
c) |
Net income under the head salary (a-b) |
6,50,000 |
6,50,000 |
d) |
Income under the head house property |
- |
- |
e) |
Less: Deduction u/s 24 |
- |
- |
f) |
Net income under the head house property (d-e) |
- |
- |
g) |
Gross total income (c+f) |
6,50,000 |
6,50,000 |
h) |
Less: Deduction u/s 80C |
1,50,000 |
- |
i) |
Less: deduction u/s 80D |
25,000 |
- |
j) |
Total Income (g-h-i) |
4,75,000 |
6,50,000 |
k) |
Less: Basic exemption |
2,50,000 |
3,00,000 |
l) |
Taxable income (j-k) |
2,25,000 |
3,50,000 |
m) |
Tax on taxable income @5% |
11,250 |
17,500 |
n) |
Rebate u/s 87A |
11,250 |
17,500 |
o) |
TaxPayable (m-n) |
- |
- |
Important points:
- Both tax regimes waive tax liabilities for Rs. 7 lakhs annual income
- Under the old regime, if taxable income is below Rs. 5 lakh, a rebate of up to Rs. 12,500 applies
- Whereas, under the new regime, this limit increases to Rs. 25,000.
- Also, it must be noted that under the new regime, deductions like 80C and 80D are unavailable, but it offers a higher basic exemption limit.
Also read about: What is short-term capital gains tax?
How to pay no income tax on a 7 lakhs salary?
Paying no income tax on a salary of Rs. 7 lakhs is achievable through careful tax planning and using the different provisions available under the Income Tax Act, 1961. Let’s study them and understand how you can ensure zero tax on a Rs. 7 lakhs salary:
Choose the new tax regime
Under the new tax regime, you get a rebate of Rs. 25,000 u/s 87A for individuals whose taxable income does not exceed Rs. 7 lakhs. This rebate effectively brings the tax liability to zero for those within this income bracket. Moreover, opting for the new tax regime relieves you from the:
- Hassles of making time-bound tax-saving investments and
- Burden of maintaining their records for future reference
Claim all eligible deductions and exemptions
If you are opting for the old tax regime, there are several exemptions and deductions that you can claim to reduce your overall tax liability. Some key ones are:
- Standard deduction
- Rs. 50,000, available without any restrictions
- Section 80C deductions
- Up to Rs. 1.5 lakh for investments in PPF, EPF, tax-saving mutual funds, insurance premiums, etc.
- Section 80CCD(1B) deduction
- Rs. 50,000 for contributions to the National Pension Scheme (NPS)
- Section 80D deduction
- Up to Rs. 25,000 for medical insurance premiums
- This limit increases to Rs. 50,000, in case parents are senior citizens
- Section 80TTA Deduction
- Up to Rs. 10,000 for interest on savings account
- Section 80U deduction
- Up to Rs. 75,000 for individuals with disabilities
Also read about: How to avoid long term capital gains tax on mutual funds
Invest in tax-saving schemes
By putting your money in tax-saving instruments, you can claim deductions under Section 80C and other applicable sections. Some common investment options are:
- Tax-Saving fixed deposits
- Employees' Provident Fund (EPF)
- Investing in mutual funds (ELSS)
- Sukanya samriddhi yojana (SSY)
- National Pension Scheme (NPS)
- Tax-Saving insurance policies
- Public Provident Fund (PPF)
Make sure you are filing your tax returns correctly
To maximise your tax savings, it is crucial to file your tax returns accurately. Let’s see how you can do so:
- Keep records of all investments, insurance premiums, and expenses eligible for deductions.
- Take professional advice to ensure you claim all possible deductions and comply with tax laws.
- Use online tax calculators and filing tools to avoid errors
Conclusion
As per the latest income tax laws, it is now possible to pay zero income tax on salary up to Rs. 7 lakhs. You can choose either of the tax regimes with both having their distinct advantages. The new tax regime simplifies the process with a higher rebate and fewer deductions, while the old regime offers extensive deductions and exemptions like Section 80C, 80D, and 80TTA.
Hence, carefully evaluate your investment plans and eligible deductions to decide which regime suits you best. Also, accurately file returns to remain compliant with the tax laws. Do you wish to save via mutual funds? The Bajaj Finserv Platform has listed 1,000 mutual fund schemes on its online platform. Pick the best ones as per your financial goals.
