There are multiple tax-saving techniques that taxpayers can make use of in order to reduce their tax burdens. These methods come in handy for those individuals who have a high yearly income.
If you belong to the above 50 lakh tax slab, you can opt to reduce the tax liability using any of the tax-saving options below. The guide below states how much tax will be deducted for 50 lakhs and various tax-saving methods you can use to reduce your yearly taxable income.
How to calculate income tax on salary above 50 lakhs? Tax calculation example
To get a practical idea on how tax is calculated on salary above 50 lakhs, check out this example:
| Gross Salary | 50,00,000 |
| Less: | |
| HRA | (3,50,000) |
| LTA | (60,000) |
| Reimbursem*nts | (50,000) |
| Children education and hostel allowance | (15,000) |
| Standard Deduction | (50,000) |
| Professional Tax | (2400) |
| Taxable Salary Income | 44,72,600 |
| Less: Deductions | |
| 80C (Refer Note below) | (1,50,000) |
| 80D | (50,000) |
| 80E | (25,000) |
| Net Taxable Income | 42,47,600 |
| Tax on the above income | 10,86,780 |
| Rebate u/s 87A | NA |
| Total Tax | 10,86,780 + 4% cess |
Moreover, eligible individuals can also claim these deductions:
| Interest on home loan deduction u/s 24b | (2,00,000) |
| Home loan 80EEA | (1,50,000) |
| Investments in National Pension Scheme (NPS) u/s 80CCD(1B) | ( 50,000) |
Note: You might not always have a home loan or be interested in the investment plans listed under Section 80C. However, you may consider these investments to make use of the entire Rs 1.5 lakh limit under 80C:
- ELSS mutual funds- Rs 60,000 (Investment: Rs 500 per month SIP, Returns- 12% CAGR, Lock-in-period: 3 years)
- ULIP or endowment plant- Rs 12,000 premium
- Children’s Education fees: (Rs 25,000 to Rs 1 lakh)
- EPF: Around Rs 30,000 – Rs 72.000, i.e., 12% of your basic + DA (contribution already made by your employer)
- Term plan insurance- Rs 12,000 premium (Around Rs 1 Crore cover)
Furthermore, if you calculate taxes using the new regime, your tax liability will be
For FY 2023-24: Rs 12,37,500 + 4%cess
For FY 2022-23: Rs 11,85,000 + 4% cess.
What are the ways of tax planning for salary above 50 lakhs?
You can conduct your tax planning by making use of certain exemptions and deductions that are allowed by the Income Tax Act. But, you first need to understand your salary structure.
Your salary component may include various tax-exempt allowances. The remaining salary will be your taxable income.
- Salary (-) Exemptions = Taxable Salary Income
- Taxable Salary Income (-) Deductions = Net taxable income.
Therefore, we can maximise tax savings through exemptions and deductions.
Part 1- Exemptions
You can find out your salary structure from the CTC, which generally looks like:
| Salary Component | Taxability |
| Basic | Fully-taxable |
| Dearness Allowance | Fully-taxable |
| House Rent Allowance (HRA) | Exempt up to a certain limit. Calculate now |
| Leave Travel Allowance (LTA) | Actual travel ticket expenses exempt for 2 trips in 4 years under 10(5). Read more |
| Mobile/ Internet reimbursem*nt | Exempt if: – used predominantly for office purposes – proofs/bills submitted |
| Children Education and Hostel allowance | Rs 4800 per child (max 2 children) |
| Food | Rs 50 per meal (max 2 meals a day)Annual= Rs. 31,200 (50*2*26 days*12 months) |
| Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
| Professional Tax | Generally Rs 2,400 (Varies from state to state) |
Part 2- Deductions
When you are tax planning for salary above 10 lakhs, you can get deductions on the following:
| Paying health insurance policy premium (Section 80D) | Self, your spouse, and your dependent children: Rs 25,000 (Rs 50,000 if aged 60 and above) Parents: Rs 25,000 (Rs 50,000 if aged 60 and above) |
| Opting for an education loan (Section 80E) | Interest deduction for 8 years from the year of repayment of loan taken for the higher education of yourself, your spouse, dependent children, or a student of whom you are the legal guardian |
| Donating to charity (Section 80G) | 50% or 100% of the eligible amount |
| Investing in tax saving instruments (Section 80C) | Tax benefit of Rs.1,50,000 per year. You can invest in the following options: – Employees’ Provident Fund (EPF) – Public Provident Fund (PPF) – Equity Linked Saving Scheme funds (ELSS) – Home loan repayment and Stamp duty – Sukanya Smriddhi Yojana (SSY) – National Savings Certificate (NSC) – Fixed Deposit for 5 years, and more |
| Costs to treat disabled dependents (Section 80DD) | If you have disabled dependents for whom you bear medical expenses, you are eligible for the tax relief: – 40% disability: Rs.75,000 – 80% disability: Rs.1,25,000 |
| Deductions on home loan payments | Principal amount: Upto Rs 1.5 lakhs u/s 80C Interest amount: Upto Rs 2 lakhs paid u/s 24b |
| Maturity amount of a Life Insurance Policy | Maturity proceeds are tax exempt if the sum assured is ≤: – 20%: policies issued before 1 April 2012 – 10%: policies issued after 1 April 2012 – 15%: policies issued after 1 April 2013 for a person with disability or disease. |
These are some of the legal ways in which you can reduce your tax burden. However, there are several terms and conditions that are associated with each tax saving method. The tax deductions can be claimed while filing for Income Tax Returns.
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