Many people rush to invest just before the tax deadline, often missing out on substantial tax savings. Yet, by planning for tax-saving at the beginning of the financial year, individuals, especially those earning Rs 10 lakh annually, can potentially save significant sums. Here are some methods outlined to help you save lakhs in taxes.
Under the new tax regime, the government has set the tax exemption limit at Rs 7 lakh, whereas under the old tax regime, exemption is granted for annual incomes up to Rs 5 lakh. If your income exceeds these thresholds in either regime, you’ll need to employ certain methods to save on taxes. Here’s how you can potentially avoid paying any tax on an income of Rs 10 lakh
How much tax is levied on earnings of Rs 10 lakh?
To save taxes on an annual income of Rs 10 lakh, one would need to choose the old tax regime. This system offers various tax slabs. According to the Income Tax Rules under the old regime, no tax is levied on annual income up to Rs 2.5 lakh. A 5% tax rate is applicable to income ranging from Rs 2.5 lakh to Rs 5 lakh. Income between Rs 5 lakh and Rs 10 lakh is taxed at 20%, while there is a 30% tax slab for annual incomes exceeding Rs 10 lakh.
Also Read: New COVID-19 Variant ‘FLiRT’ Spreading In US: Is It A Concern? Learn About Symptoms And More
You will not have to pay a single rupee tax.
With an annual income of Rs 10 lakh, the standard tax rate would be 30%. However, there are ways to potentially avoid paying any tax by utilizing investments and deductions.
To save tax on an annual income of Rs 10 lakh, you can utilize various deductions and investments:
- Standard Deduction: You can claim a standard deduction of up to Rs 50,000, reducing your taxable income to Rs 9.50 lakh.
- Investments under Section 80C: By investing in schemes like PPF, EPF, ELSS, NSC, etc., you can save tax up to Rs 1.5 lakh under Section 80C. This reduces your taxable income to Rs 8 lakh.
- Additional Investment in NPS: Investing up to Rs 50,000 annually in the National Pension System (NPS) provides an extra tax exemption of Rs 50,000 under Section 80CCD (1B), further reducing your taxable income to Rs 7.50 lakh.
- Home Loan Interest Deduction: If you have taken a home loan, you can save up to Rs 2 lakh on its interest under Section 24B of Income Tax. Subtracting this from Rs 7.50 lakh, your total taxable income becomes Rs 5.50 lakh.
- Medical Insurance Premium: By taking a medical policy under Section 80D of Income Tax for yourself, your spouse, children, and parents, you can save up to Rs 25,000. Additionally, an extra discount of up to Rs 50,000 can be availed if you buy health insurance for your parents. Subtracting these deductions from Rs 5.50 lakh, your total tax liability reduces to Rs 4.75 lakh, which falls below the old tax regime limit of Rs 5 lakh. Hence, you won’t have to pay any tax on an annual income of Rs 10 lakh.
Also Read: Balance from Within with Your Guide to Yoga and Healthy Living
