Maximizing Tax Savings: Strategies for Individuals Earning Above Rs 7 Lakh
With tax-saving season underway, high earners are exploring avenues to minimize their tax liabilities. The Central Government has introduced tax exemptions for incomes up to Rs 7 lakh under the New Tax Regime, while the threshold stands at Rs 5 lakh under the Old Tax Regime. However, those earning beyond these limits may find themselves subject to taxation.
Taxation Structure under the Old Tax Regime:
According to Income Tax regulations in the old tax regime, individuals are exempt from tax on annual incomes up to Rs 2.5 lakh. A 5% tax applies to incomes ranging between Rs 2.5 lakh to Rs 5 lakh, while the rate escalates to 20% for incomes between Rs 5 lakh to Rs 10 lakh. Incomes exceeding Rs 10 lakh fall under the 30% tax slab.
Saving Tax on Incomes Over Rs 10.50 Lakh:
Even with an annual income of Rs 10 lakh or higher, individuals can potentially eliminate their tax liabilities through strategic investments and exemptions.
1. Utilize Standard Deduction: A standard deduction of up to Rs 50,000 is available, reducing the taxable income to Rs 10 lakh.
2. Leverage Section 80C Investments: Investing in schemes such as PPF, EPF, ELSS, and NSC allows for tax savings of Rs 1.5 lakh under Section 80C. This reduces the taxable income to Rs 8.5 lakh.
3. Additional Deduction with NPS: By investing up to Rs 50,000 annually in NPS under Section 80CCD (1B), individuals can save an additional Rs 50,000 in taxes, bringing the taxable income down to Rs 8 lakh.
4. Benefit from Home Loan Interest Deduction: Individuals with a home loan can claim tax savings of up to Rs 2 lakh on the interest paid under Section 24B. Deducting this amount further reduces the taxable income to Rs 6 lakh.
5. Opt for Medical Insurance: Investing in a medical policy under Section 80D allows for tax savings of up to Rs 25,000. Additionally, insuring family members and parents can yield an extra deduction of up to Rs 50,000. After accounting for this deduction, the taxable income reduces to Rs 5.25 lakh.
6. Claim Donation Benefits: Contributions to eligible organizations can fetch tax benefits of up to Rs 25,000 under Section 80G. Deducting this amount brings the taxable income within the Rs 5 lakh threshold, where no tax is applicable under the old tax regime.
By strategically leveraging deductions and investments, individuals earning above Rs 7 lakh can effectively minimize their tax burden and optimize their financial planning.