High-income individuals, especially those who belong to the above 30 lakh tax slab, have to bear a heavy tax burden. However, there are various ways in which the tax liability can be reduced to some extent.
So, if you earn Rs 30 lakh yearly and are looking for ways how to save tax for a salary above 30 lakhs, give this article a read. It covers everything about how you can save taxes by availing the deductions available under various sections of the Income-tax Act, 1961.
Budget 2024 Latest Updates
As per the latest Finance Act 2024, changes have been made in the slab rate for the new tax regime as follows -
Tax Slab | Tax Rate |
upto ₹ 3 lakh | Nil |
₹ 3 lakh - ₹ 7 lakh | 5% |
₹ 7 lakh - ₹ 10 lakh | 10% |
₹ 10 lakh - ₹ 12 lakh | 15% |
₹ 12 lakh - ₹ 15 lakh | 20% |
more than ₹ 15 lakh | 30% |
In the new tax regime, the standard deduction has been increased from Rs.50,000 to Rs.75,000, and the deduction on family pension has also been increased from Rs.15,000 to Rs.25,000.
In the budget of 2023, revisions have been implemented to the tax slab rates, establishing the new tax regime as the default for FY 2023-24. Taxpayers have the option to revert to the old tax regime before filing their income tax returns by submitting Form 10-IEA. It needs to be submitted only If he has business income and this is not applicable if you are filing ITR 1 or 2.
Furthermore, the rebate under section 87A has been raised to Rs 25,000, resulting in zero tax liability for salary income up to Rs 7.5 lakhs.
Keeping this in mind, let us discuss the tax slab rates, deductions, and exemptions available with examples under both regimes.
Income Tax Slabs Under Old vs New Income Tax Regime:
The tax slabs under the new vs old tax regime are:
Note: The tax slabs under the new regime have been revised in Budget 2023, there have been no changes made in budget 2024.
To calculate your tax liability in both regimes, you can use old vs new tax regime calculator.
Please note that you will not receive any deductions under the new regime. The tax benefits you will read in this article will only be applicable if you file under the old regime.
Ways To Save Tax On 30 Lakhs Salary
When you are tax planning for a salary above 30 lakhs, you need to know the following:
- Salary (-) Exemptions = Taxable Salary Income
- Taxable Salary Income (-) Deductions = Net taxable income.
Therefore, you can maximize tax savings through the following exemptions and deductions:
Part 1- Exemptions
You can find out your salary structure from the CTC. It generally looks like this:
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 are exempt for 2 trips in 4 years under 10(5). Read more |
Mobile/ Internet reimbursement | Exempt if: – used predominantly for office purposes – proofs/bills submitted |
Children's 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) |
Professional Tax | Generally Rs 2,400 (Varies from state to state) |
Part 2- Deductions
When you are tax planning for a salary above 30 lakhs, you can get deductions on the following:
Paying health insurance policy premium | 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 | 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 – severe or 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 |
The 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. |
Standard Deduction | Rs 50,000 (Will be given to all without any restrictions) |
Example Of Calculation Of Tax Under New And Old Tax Regimes
Let’s take an example for better understanding:
Example: Mr A has a Salary income of Rs. 30 lakhs. He is also claiming the following deduction and exemption. Calculate tax liability under the Old Tax Regime and New Tax Regime
- HRA exemption = Rs 1,60,000
- LTA exemption = Rs. 55,000
- Children's Education and Hostel Allowance =Rs. 9,600
- Profession Tax = Rs. 2,400
- Investment in PPF, ELSS = Rs. 1,50,000
- Medical insurance premium towards Parents = Rs. 50,000
- Interest on education loan = Rs. 25,000
Particular | Old tax regime | New tax regime |
Gross Salary u/s 17(1) | 30,00,000 | 30,00,000 |
Less: Exemption u/s 10 | ||
HRA Exemption | 1,60,000 | ❌ |
LTA Exemption | 55,000 | ❌ |
Reimbursement | 0 | ❌ |
Children's education and hostel allowance | 9,600 | ❌ |
Less: Deduction u/s 16 | ||
Standard deduction | 50,000 | 50,000 |
Profession Tax | 2,400 | ❌ |
Income under the Head Salary | 27,23,000 | 29,50,000 |
Less: Deduction under Chapter VI-A | ||
Section 80C | 1,50,000 | ❌ |
Section 80D | 50,000 | ❌ |
Section 80E | 25,000 | ❌ |
Net Total Income | 24,98,000 | 29,50,000 |
Income Tax | 5,84,376 | 6,08,400 |
Less: Rebate u/s 87A | 0 | 0 |
Tax Liability (Including Cess) | 5,84,376 | 6,08,400 |
As per the above computation the Old Tax Regime is more beneficial by Rs. 24,024. This is because of the claim of deduction and exemption under the Old Tax Regime, which is not available in the New Tax Regime.
Note: In the case of the Old Tax Regime, 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)
- 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)
- ULIP or endowment plant- Rs 12,000 premium.