scorecardresearchIncome tax filing: How to save on tax for a salary above ₹7 lakhs?

Income tax filing: How to save on tax for a salary above 7 lakhs?

Updated: 19 Jul 2023, 04:10 PM IST
TL;DR.

Taxpayers filing their ITRs are inquiring about which tax regime would suit them best if their income just exceeds the exemption limit allowed under the Income Tax Act for the FY 2022-23.

How to save on taxes on income just beyond the exemption limit?

How to save on taxes on income just beyond the exemption limit?

The budget for the fiscal year 2023-24 includes significant tax reforms, such as the introduction of a tax rebate for individuals earning up to 7 lakhs under the new tax regime. This means that individuals with an income below 7 lakhs will be completely exempt from paying taxes if they opt for the new tax regime. Unlike before, where there were no exemptions or deductions, the FY 2023-24 Budget has announced several exemptions and deductions under the new tax regime.

With the due date looming nearer, taxpayers are busy filing their ITRs. However, many of them are confused about deciding between the old and new tax regimes, especially those receiving a salary just beyond the exemption limit.

Let us understand this with the help of an example.

Choosing the new tax regime would be advantageous if your salary is 7 lakhs because of the tax rebate it offers. Conversely, if you select the old tax regime, you will need to make certain investments in order to qualify for deductions and exemptions. However, what if you earn more than 7 lakhs? Fret not, as we can still tax exemption in both the new and old tax regimes depending on what you choose.

The following comparison highlights tax calculations using both the old and new tax regimes for a taxpayer drawing a gross salary of 7,01,000.

Calculation using old tax regime

Gross Salary

7,01,000

House Rent Allowance

50,000

Standard Deduction

50,000

Deductions under Sections 80C, 80CCC, 80CCD (1)

1,50,000

Total Exemption and Deductions 

2,50,000

Net Taxable Income 

4,51,000

Calculating tax on net taxable income

Up to 2,50,000

Nil

2,50,000 to 5,00,000 (5%)

10,050

5,00,001 to 10,00,000 (20%)

Nil

Above 10,00,000 (30%)

Nil

Total Tax

10,050

Tax Rebate

12, 500

Net Tax Liability 

0

Tax Refund

2,450

Taxpayers choosing the old tax regime have the benefit of availing the much sought-after tax deductions and exemptions under various sections of the Income Tax Act, 1961.

On the other hand, if you make the choice to embrace the new tax regime for the fiscal year 2023-24, this will be your tax situation.

Calculation using the new tax regime (FY 2023-24)

Gross Salary

7,01,000

Standard Deduction

50,000

Total Exemption

50,000

Total Deductions 

Nil

Net Taxable Income 

6,51,000

Calculating tax on net taxable income

Up to 3,00,000

Nil

3,00,001 to 6,00,000 (5%)

17,550

6,00,001 to 9,00,000 (10%)

Nil

9,00,001 to 12,00,000 (15%)

Nil

12,00,001 to Rs15,00,000 (20%)

Nil

Above 15,00,000 (30%)

Nil

Total Tax

17,550

Tax Rebate

25,000

Net Tax Liability 

0

Tax Refund

7,450

Not all taxpayers may be willing to go back to the old tax regime to file their taxes. However, taxpayers selecting the new tax regime or filing their ITRs with the given default option, which is the new tax regime, can seek tax rebates under Section 87A of the Income Tax Act.

Taxpayers filing their ITRs under the next tax regime have a reason to rejoice as the tax rebate limit under Section 87A was enhanced to 25,000 on income up to 7 lakhs from this FY 2023-24. The previous limit was set to 12, 500 on income up to 5 lakhs. However, taxpayers continuing to file their taxes under the old tax regime will get a rebate of 12, 500 on income up to 5 lakhs.

Those filing their taxes under the new tax regime can also claim the following deductions including

  • Section 80CCD (2) - Employer's contribution to NPS
  • Section 80CCH: Investment in the Agniveer Corpus Fund

The debate between filing ITRs under the old tax and the new tax regimes is unwanted considering how it all depends on the extent of taxable income and the willingness to avail of tax exemptions and deductions while filing taxes.

 

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First Published: 19 Jul 2023, 04:10 PM IST