Save Tax on Income Above 7 Lakh

2024 Budget Update

On 23rd July 2024 Financial Minister Nirmala Sitharaman proposed some changes in the tax structure under the new tax regime. The new tax regime is as follows.

Difference between pre-budget and post-budget tax slab

The 2024 Budget has raised the standard deduction in the new tax system to ₹75,000. Additionally, the family pension deduction has been increased from ₹15,000 to ₹25,000. With these adjustments, taxpayers will save ₹17,500 under the updated tax structure.

Old Tax vs New Tax Regime Tax Slabs

Tax Saving Options Under New Regime (FY 2024-25)

While the old tax regime offers a variety of deductions and exemptions under sections like 80C, 80D, etc., the new tax regime provides a simpler structure with lower tax rates. However, it's important to consider the tax rebate under Section 87A to make an informed decision.

1. Tax Rebate Under Section 87A

   • For taxable income up to Rs. 7,00,000: You can claim a tax rebate of Rs. 25,000. This effectively means no tax liability for individuals earning up to Rs. 7,00,000.

   • For taxable income up to Rs. 5,00,000: The rebate remains at Rs. 12,500, similar to the old tax regime.

2. Deductions Available Under the New Tax Regime

   Apart from the tax rebate, the following deductions are permissible under the new tax regime:

   • Standard Deduction (Section 16): Salaried individuals can claim a standard deduction of Rs. 75,000 (increased from Rs. 50,000 in the previous year).

   • Employer's Contribution to NPS (Section 80CCD(2)): Deduction for the employer's contribution to your National Pension System (NPS) account.

   • Investment in Agniveer Corpus Fund (Section 80CCH): Deduction for investments made in the Agniveer Corpus Fund.

   • Family Pension (Section 57(iia)): Deduction for family pension received.

   • Exemptions Related to Retirement Benefits: Exemptions for voluntary retirement under Section 10(10C), gratuity under Section 10(10), and leave encashment under Section 10(10AA).

   • Interest on Home Loan (Section 24): Deduction for interest paid on a home loan for a let-out property.

   • Transport Allowance: Deduction for transport allowance received by a specially-abled person.

   • Conveyance Allowance: Deduction for conveyance allowance received to cover employment-related expenses.

   • Travel Allowance: Deduction for any compensation received to cover travel costs on tour or transfer.

Tax Saving Options Under Old Regime (FY 2024-25)

If you choose the old tax regime, you can avail of tax deductions and exemptions under various sections of the Income Tax Act.

Here is a list of some of the allowable deductions applicable in the case of the old regime:

Deductions and Exemptions

• Section 80C: Claim a deduction of up to Rs. 1.5 lakh on investments made in pension funds, mutual funds, ULIPs, government savings schemes, life insurance premiums, home loan principal amount, education fees, etc.

• Section 80CCD: Get an additional deduction of Rs. 50,000 if you invest in the National Pension Scheme.

• Section 80D: Deduct health insurance premium payments made towards yourself or your parents.

• Section 80TTA: Claim a deduction on interest earned from savings bank accounts.

• Section 80G: Deduct donations made to charitable organizations.

• Professional Tax: Deduct the professional tax paid under Section 16.

• Section 10 Exemptions: Claim exemptions for:

  • House Rent Allowance (HRA)

  • Relocation Allowance

  • Leave Travel Allowance (LTA)

  • Mobile Reimbursement

Surcharge

The cess and surcharge on income tax payable are applicable if the total income of the assessee exceeds the below-mentioned limits:

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How to Pay Zero Tax on a 7 Lakh Salary?

Great news! With the recent changes in the Indian Income Tax Act, it's now possible to pay zero tax on a salary of up to Rs. 7 lakhs.

To pay zero tax on a 7 lakh salary using the old tax regime, maximize deductions:

• Invest Rs. 1.5 lakh: Utilize Section 80C deductions for PPF, EPF, ELSS, etc.

• Claim HRA: If renting, claim House Rent Allowance (HRA).

• Medical Insurance: Opt for health insurance under Section 80D.

• Other Deductions: Explore additional deductions like home loan interest, tuition fees, etc.

You can reduce your taxable income below the tax-free limit by effectively using these deductions.

Note: Consult a tax professional for personalized advice.

Final Words!

Saving tax on an income above Rs. 7 lakh requires careful planning and understanding of available tax deductions and exemptions. While the new tax regime offers simpler tax slabs, the old regime often provides more opportunities for tax savings through investments and deductions. Consider factors like your overall financial situation, investment preferences, and risk appetite to maximise tax benefits. Consulting a tax professional can help you make informed decisions and optimize your tax savings.