Explore Tax Planning for Salary above 50 Lakhs: Leveraging exemptions, deductions, and strategies to optimise tax savings effectively.
In India, income tax is a crucial component of the government’s revenue, and all taxpayers must pay tax on their income. If your salary is above income tax above 50 lakhs, you are considered a high-income earner and fall under the highest income tax bracket. Therefore, it is essential to have a solid tax-saving plan to minimise your tax liability and maximise your take-home income. This article will discuss about how to save tax for salary above ₹50 lakhs.
Effective Strategies for How to Save Tax For Income Tax above 50 lakhs
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Invest in Tax-Saving Instruments
Investing in tax-saving instruments is one of the most effective ways to save tax. As per section 80C of the Income Tax Act, 1961, you can claim a deduction of up to ₹1.5 lakh by investing in various tax-saving options.
Some of the popular tax-saving instruments include Public Provident Fund (PPF), National Pension System (NPS), Equity-Linked Savings Scheme (ELSS), and tax-saving fixed deposits (FDs). These instruments not only help you save tax but also offer decent returns.
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Utilise Section 80D for Health Insurance
Apart from the deductions under Section 80C, you can also claim deductions under Section 80D for health insurance. You can claim a deduction of up to ₹ 25,000 for health insurance premiums paid for yourself, your spouse, and dependent children. If you have parents who are senior citizens, you can claim an additional deduction of ₹50,000 for their health insurance premiums. Thus, by investing in health insurance, you can save tax and secure yourself and your family against medical emergencies.
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Maximise Home Loan Benefits
If you have taken a home loan, you can claim deductions on the principal and interest payments under Section 80C and Section 24 of the Income Tax Act. You can claim a deduction of up to ₹ 2 lakh on the interest paid on a home loan for a self-occupied property. Additionally, you can claim a deduction of up to ₹1.5 lakh on the principal repayment under Section 80C.
If you have rented out the property, you can claim the entire interest paid on the home loan as a deduction from the rental income. Therefore, investing in a home loan not only helps you save income tax above 50 lakhs but also helps you own a valuable asset.
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Make Use of LTA
Leave Travel Allowance (LTA) is another tax-saving benefit provided by employers. You can claim a tax deduction on expenses incurred on domestic travel for you and your family. The LTA benefit can be claimed twice in a block of four years, and you need to produce the travel bills to claim the deduction.
However, the LTA benefit is available only on domestic travel and cannot be claimed on international trips. Therefore, you can plan your domestic vacations in such a way that you can avail of the LTA benefit and save tax.
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Opt for NPS
The National Pension System (NPS) is an excellent investment option for high-income earners to save tax and build a retirement corpus. Under Section 80CCD(1B) of the Income Tax Act, you can claim an additional deduction of up to ₹50,000 by investing in NPS.
The NPS scheme not only helps you save tax but also offers you the benefit of compounding returns over a long term.
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Donations for Tax Savings
Donating to a charity is a noble cause and can also help you save tax. Under Section 80G of the Income Tax Act, you can claim a deduction of up to 50% of the amount donated to a registered charitable organisation. Therefore, you can simultaneously contribute to a cause you believe in and save tax.
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House Rent Allowance (HRA)
If you live in rented accommodation, you can claim a tax deduction on the House Rent Allowance (HRA) provided by your employer. The HRA benefit is calculated based on your salary and your actual rent. Salary structures, including HRA, are often influenced by the pay commission, especially for government employees, ensuring that allowances like HRA are adequate and fair.
The tax deduction can be claimed on the lowest of the following three amounts: actual HRA received, 50% of your basic salary in a metro city, or 40% of your basic salary if you live in a non-metro city. Therefore, you can reduce your tax liability by availing of the HRA benefit.
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Plan Your Capital Gains
If you have invested in stocks, mutual funds, or real estate, you may have to pay capital gains tax on the profits earned. However, you can plan your capital gains by investing in tax-saving options such as equity-linked savings schemes (ELSS), National Pension System (NPS), or real estate. Investing in these options allows you to claim deductions under Section 80C and 80CCD and minimise your capital gains tax liability.
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Opt for a Lower Tax Regime
The government of India has introduced a lower tax regime with reduced tax rates for individuals who are willing to forego their deductions and exemptions. If your salary is income tax above 50 lakhs, you can opt for the lower tax regime and save tax.
Under the new regime, the tax rates for individuals with a salary between ₹50 lakhs to ₹1 crore is 30%, and for those above ₹1 crore is 35%. However, before opting for the lower tax regime, you need to calculate your income tax above 50 lakhs liability under both the old and new regime and choose the more beneficial option.
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Consult a Tax Expert
Saving tax is about investing in tax-saving instruments and understanding the various tax provisions and making informed decisions. Therefore, you should talk to CA. who can guide you on the various tax-saving options and help you best use the tax provisions. A tax expert can also help you plan your investments and reduce your tax liability.
What Are the Ways of Tax Planning for a Salary Above 50 Lakhs?
For individuals earning a salary income tax above 50 lakhs, effective tax planning can be achieved by leveraging exemptions and deductions permitted by the Income Tax Act. Start by comprehending your salary structure, which may encompass tax-exempt allowances. Subtract these exemptions from your salary to determine your taxable salary income. Next, apply deductions to this figure to arrive at your net taxable income. By strategically utilising exemptions and deductions, you can optimise your tax savings. This approach empowers you to proactively manage your tax liabilities while ensuring compliance with the Income Tax Act’s provisions.
Part 1- Exemptions
You can identify your salary components from the CTC, typically presented as follows:
| Component of Salary | Tax Treatment |
| Basic Salary | Fully taxable |
| Dearness Allowance | Fully taxable |
| House Rent Allowance (HRA) | Exempt up to a specified limit. |
| Leave Travel Allowance (LTA) | Actual travel ticket expenses exempt for 2 trips in 4 years under 10(5). |
| Reimbursement for Mobile/Internet | Exempt if: – primarily used for office purposes – valid proofs/bills submitted |
| Children Education and Hostel Allowance | Up to ₹ 4800 per child (maximum 2 children) |
| Food Allowance | Up to ₹ 50 per meal (maximum 2 meals a day); Annual limit: ₹ 31,200 (50226 days*12 months) |
| Standard Deduction | Fixed deduction of ₹ 50,000 (Applicable without restrictions) |
| Professional Tax | Usually ₹ 2,400 (Varies based on state regulations) |
Part 2- Deductions
When engaging in tax planning for an income exceeding 10 lakhs, you become eligible for deductions on the subsequent items:
| Deduction or Benefit | Eligibility and Limits |
| Health Insurance Premium (Section 80D) | Self, spouse, and dependent children: ₹ 25,000 (₹ 50,000 if aged 60 and above) |
| Parents: ₹ 25,000 (₹ 50,000 if aged 60 and above) | |
| Education Loan Interest (Section 80E) | Deductible interest for 8 years from year of higher education loan repayment |
| Charity Donations (Section 80G) | Eligible amount: 50% or 100% |
| Tax-saving Investments (Section 80C) | Tax benefit up to ₹ 1,50,000 per year. Options include EPF, PPF, ELSS, home loan, NSC, and more. |
| Costs for Disabled Dependents (Section 80DD) | – 40% disability: ₹ 75,000 |
| – 80% disability: ₹ 1,25,000 | |
| Home Loan Payments (Principal and Interest) | – Principal: Up to ₹ 1.5 lakhs (Section 80C) |
| – Interest: Up to ₹ 2 lakhs (Section 24b) | |
| Life Insurance Maturity Amount (Tax Exempt) | Maturity proceeds tax exempt if 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 individuals with disability or disease) |
Here are a few legitimate strategies to lower your tax load. Remember, each tax-saving approach comes with specific terms and conditions. You can claim these deductions when filing your Income Tax Returns.
Conclusion
If your salary is income tax above 50 lakhs, it is essential to have a solid tax-saving plan to minimise your tax liability and maximise your take-home income. By investing in tax-saving instruments, utilizing Section 80D, maximising home loan benefits, making use of LTA, opting for NPS, donating to charity, availing HRA benefits, planning your capital gains, opting for a lower tax regime, and consulting a tax expert, you can save tax and achieve your financial goals.
However, it is important to remember that income tax above 50 lakhs planning should not be done in isolation but should be a part of your overall financial planning. Therefore, you should make informed decisions based on your financial goals, risk profile, and tax liability.
Vakilsearch, as a legal and financial services provider in India, can assist individuals with tax planning and filing income tax returns. Our team of experts can help you understand the various tax-saving options, maximise your deductions, and file your taxes accurately and on time. Contact us for personalised tax advice and services.
