People have to pay tax on higher income as per the tax slab. Under the old tax regime, the Income Tax Rule says that no tax will have to be paid on annual income up to Rs 2.5 lakh.
The season of tax saving has arrived. People earning more have started struggling to save tax. The central government has given tax exemption on income up to Rs 7 lakh under the new tax regime, while annual income up to Rs 5 lakh has been exempted under the old tax regime. But if your annual income is more than these two limits then you may have to pay tax.
People have to pay tax on higher income as per the tax slab. Under the old tax regime, the Income Tax Rule says that no tax will have to be paid on annual income up to Rs 2.5 lakh. There is a provision of 5% tax on income of Rs 2.5-5 lakh. Whereas 20% tax is charged on annual income of Rs 5-10 lakh. There is a 30% tax slab on annual income of Rs 10 lakh and above.
Tax can be saved even on income of Rs 10.50 lakh
According to this, if your annual income is Rs 10 lakh then you will have to pay 30% tax. However, if you want, you will not have to pay even a single rupee tax. Not only this, even if your salary is Rs 10.50 lakh, you can save the entire amount of tax by investing and taking advantage of exemptions.
How can you save tax on income of Rs 10.50 lakh?
1. A rebate of up to Rs 50 thousand is available as standard deduction. In such a situation, tax will now be levied on Rs 10 lakh.
2. By investing in schemes like PPF, EPF, ELSS, NSC, you can save tax of Rs 1.5 lakh under Section 80C of Income Tax. Now if we subtract Rs 1.5 lakh from Rs 10 lakh, Rs 8.5 lakh will come under tax.
3. Similarly, if you separately invest up to Rs 50,000 annually in the National Pension System (NPS), then under Section 80CCD (1B), you get help in saving income tax of additional Rs 50 thousand. Now if we subtract Rs 50 thousand more, Rs 8 lakh will come under the tax net.
4. If a home loan is also taken, then tax saving of up to Rs 2 lakh can be done on its interest under Section 24B of Income Tax. If you subtract another Rs 2 lakh from Rs 8 lakh, the total tax income will be Rs 6 lakh.
5. By taking a medical policy under Section 80D of Income Tax, you can save tax up to Rs 25 thousand. Your name, your wife and children’s names should be there in this health insurance. Apart from this, if you buy health insurance in the name of your parents, you can get an extra discount of up to Rs 50,000. In this case, if we subtract 75 thousand from Rs 6 lakh, the total tax liability will be Rs 5.25 lakh.
6. If you donate to any organization, you can avail tax benefit of up to Rs 25,000. Under Section 80G of Income Tax, you can claim tax deduction up to Rs 25,000 on the amount given as donation.
After deducting Rs 25 thousand, your income will now come in the tax slab of Rs 5 lakh. According to Income Tax rules, no tax will have to be paid under the old tax regime on income up to Rs 5 lakh.
