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How to Save Tax if Salary is Above 5 Lakhs for FY 23-24?

Khush Trivedi , Last updated: 15 May 2024  
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Introduction

As the due dates are not so far to file your Income Tax returns for the FY 23-24, as an individual taxpayer one cannot contribute that much in form of taxes on their earnings. Hence government has provided various Tax benefits, Exemptions, Deductions & reliefs to an individual taxpayer in order to reduce their Tax liability. Let's understand some of the ways to reduce your Tax liability.

How to Save Tax if Salary is Above 5 Lakhs for FY 23-24

Latest Amendment made under Finance Act 2023

As New Tax Slabs are introduced us 115BAC. Accordingly, now the basic exemption limit is Rs. 3,00,000. Also Rebate under Section 87A is made applicable on Income up to Rs 7,00,000. Thus, if you opt for the New Tax Regime, those Individuals having Income less than Rs. 7,00,000 will have to pay Zero Tax Liability.

Old regime Vs New Regime

Tax Slabs:

Tax Slab FY 2023-24 Tax Rate (Old tax regime) Tax Slab FY 2023-24 Tax Rate (New tax regime)
Up to Rs 2,50,000 Nil Up to Rs 3,00,000 Nil
Rs 2,50,000 - Rs 5,00,000 5% Rs 3,00,000 - Rs 6,00,000 5%
Rs 5,00,000 - Rs 10,00,000 20% Rs 6,00,000 - Rs 9,00,000 10%
Rs 10,00,000 and beyond 30% Rs 9,00,000 - Rs 12,00,000 15%
NA NA Rs 12,00,000 - Rs 15,00,000 20%
NA NA Rs 15,00,000 and beyond 30%

 

Sr. no Particulars Taxability under old regime Taxability under new regime (115BAC)
1 Basic Salary Fully Taxable Fully Taxable
2 HRA Exempt us 10(13A) to the lowest of: Fully Taxable
    (i) Actual HRA received  
    (ii) 50%(Who lives in metro cities)/40% of (salary + DA)  
    (iii) Rent paid - 10% of Salary  
3 Commission Fully Taxable Fully Taxable
4 Children Education allowance Exempt up to Rs. 100 per month per child maximum 2 child Fully Taxable
5 Children hostel Allowance Exempt up to Rs. 300 per month per child maximum 2 child Fully Taxable
6 Transport allowance Exempt: Rs. 3200 pm only in case of blind/deaf & dumb/handicapped E'ee Exempt: Rs. 3200 pm only in case of blind/deaf & dumb/handicapped E'ee

As a taxpayer it is important to know about the exemptions & deductions available for the taxation purpose let's check out some standard exemptions & deductions allowed under both regimes

Exemptions & Deductions allowed under new regime

Unlike the Old tax regime, the new tax regime has minimal scope for claiming deductions or exemptions. Deductions that are available in the new tax regime are as follows.

Sr. no Particulars Old regime New regime (115BAC)
1 Income level to claim rebate up to 5 Lakhs up to 7 Lakhs
2 Rebate us 87A Rs. 12,500 Rs. 25,000
3 Standard Deduction us 16 Rs. 50,000 Rs. 50,000
4 Entertainment allowance Allowed Not allowed
5 Professional Tax Allowed Not allowed
6 Interest deduction us 24b (Self occupied property) Allowed Not allowed
7 Interest deduction us 24b (Let out property) Allowed Allowed
8 Employee's own contribution Allowed Not allowed
9 Employer's contribution Allowed Allowed
10 80C (EPF/LIC/ELSS/PPF etc.) Allowed Not allowed
11 80D(Medical insurance premium) Allowed Not allowed
12 80U(Disable Individual) Allowed Not allowed
13 80E(Interest on education loan) Allowed Not allowed
14 80EEB(Interest on electric vehicle loan) Allowed Not allowed
15 80G(Donations) Allowed Not allowed
16 80TTA & 80TTB (Bank Interest) Allowed Not allowed
17 Other chapter VI-A deductions Allowed Not allowed
18 Gift up to Rs. 50,000 Allowed Allowed

Rebate us 87A under both regimes

Conditions to claim:

  • Only Resident Individual can claim
  • Senior citizens above 60 years and up to 80 years of age are eligible to claim rebates under Section 87A
  • Super senior citizens above 80 years are not eligible to claim the rebate.
  • The rebate is applicable to the total tax amount before applying 4% health and education cess
  • The total income after subtracting the deductions should not exceed the threshold limit of Rs. 5 lakhs under the old regime or Rs. 7 Lakhs for FY- 2023-24 under the new regime

rebate us87A to save tax

Let's Understand how to calculate rebate who have opted new regime

Particulars Amount Amount Amount
Total Taxable Income 5,00,000 7,00,000 8,00,000
Less: Basic Exemption Limit 3,00,000 3,00,000 3,00,000
Taxable Income after Basic exemption limit 2,00,000 4,00,000 5,00,000
Tax Payable 10,000 25,000 35,000

Less: Rebate under section 87A

Lower of

  • Tax Payable or
  • Rs 12,500/25000

10,000

25,000

NIL

Balance Tax Payable NIL NIL 35,000
Add: Health & Education Cess @ 4% - - 1,400
Final Tax payable - - 36,400

How to choose correct regime to minimize your tax liability?

While deciding about the regime it is important to take into account all the exemptions & deductions that available under old regime & new regime as discussed above. After deducting all relevant deductions & exemptions & you will get your Net total income under both regimes & now it is easy to compare that under which regime your taxability is minimal

It is important to choose the regime logically as in order to deduct TDS on salary an employee have to communicate the regime, he, wish to opt

An Assessee should also consider his current year losses if any like loss from house property, capital gains, or business & profession as it will affect your net total income

Let's understand practically with the help of an example that how actual computation can be done under both regimes.

Illustration:

Mr. X has following earnings per month

Basic Pay: 50,000.

Dearness allowance: Rs. 2,000.

House rent allowance: Rs. 2,00,000 (Gross).

Bonus: Rs. 1,00,000.

Professional tax paid: 2400.

Mr. X had paid interest on self-occupied house & having loss from self-occupied house of Rs. 1,00,000 & is eligible to claim 80C of Rs. 1,00,000 & 80D of Rs. 25,000.

Mr. X is residing in Delhi & paying rent of Rs. 18,000 per month.

Computation of tax liability of Mr. X for the FY 23-24

 

Old Regime

New Regime

Particulars

Amount

Amount

Amount

Amount

Income From Salaries

       

Basic Salary (50,000*12)

 

6,00,000

 

6,00,000

Dearness Allowance (2000*12)

 

24,000

 

24,000

Bonus

 

1,00,000

 

1,00,000

House Rent allowance received

2,00,000

 

2,00,000

 

Less: Exempt us 10(13A)(Least of the following)

1,53,600

46,400

NA

2,00,000

(i)Actual received

2,00,000

     

(ii) 50% Salary(50,000+2,000*12)

3,12,000

     

(iii)Rent paid (18000*12) minus 10% of salary (50,000+2,000)*12

1,53,600

     

Gross salary

 

7,70,400

 

9,24,000

Less: Standard deduction us 16(ia)

 

(50,000)

 

(50,000)

Less: Professional Tax paid us 16(iii)

 

(2,400)

 

NA

Net Taxable Salary

 

7,18,000

 

8,74,000

Income From House Property

       

Loss from self-occupied house us 24b

 

(1,00,000)

 

NA

Gross Total Income

 

6,18,000

 

8,74,000

Less: Deductions under chapter VI-A

       

80C

 

(1,00,000)

 

NA

80D

 

(25,000)

 

NA

Net Total Income

 

4,93,000

 

8,74,000

Computation of Tax liability

Tax Slab (Old regime) Rate Amount
Up to Rs 2,50,000 Nil -
Rs 2,50,000 - Rs 5,00,000 5% 12,150
Rs 5,00,000 - Rs 10,00,000 20%

-

Above Rs.10,00,000 30% -
Total   12,150
Less: Rebate us 87A   (12,150)
Net Tax Liability   NIL
 
Tax Slab (New Regime) Rate Amount
Up to Rs 3,00,000 Nil -
Rs 3,00,000 - Rs 6,00,000 5% 15,000
Rs 6,00,000 - Rs 9,00,000 10% 27,400
Rs 9,00,000 - Rs 12,00,000 15% -
Rs 12,00,000 - Rs 15,00,000 20% -
Rs 15,00,000 and beyond 30% -
Total   42,400
Health & Education Cess @4%   1,696
Net Payable   44,096
 

Conclusion

As in FY 23.24 New regime is default tax regime hence it is important to select which TAX regime is more beneficial. After observing above computation, we get basic idea that how an individual can save taxes by comparing both regimes & make their strategy to reduce his tax liabilities.

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Published by

Khush Trivedi
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Category Income Tax   Report

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