Are you wondering how to save tax on a ₹10 lakhs salary? This is a common question, and the answer depends on the tax regime you choose and the deductions or exemptions you claim. Income tax in India is applied according to specified tax slabs, but salaried taxpayers can reduce their tax liability by using available exemptions and deductions.
Salaried individuals can choose between two tax systems during a financial year:
- The old tax regime (allows specified exemptions and deductions)
- The new tax regime (offers lower rates but removes most exemptions and deductions)
Key points to remember:
- The old regime permits deductions such as Section 80C, 80D and certain salary exemptions like HRA and LTA.
- The new regime generally disallows most of these exemptions and deductions, though it offers lower rates and limited deductions like employer NPS contributions under Section 80CCD(2).
Below is a practical guide to help you understand how tax works on a ₹10 lakhs salary and the options to save tax.
Understand Your Salary Structure
Before planning tax savings, you must understand your salary structure. Taxable salary is calculated as total salary minus exempt components (if you use the old regime). After subtracting eligible deductions from the taxable salary, you arrive at the net taxable income.
Knowing each component of your salary—basic salary, HRA, allowances, and employer contributions—helps you evaluate which regime will be more beneficial. A clear grasp of components also makes it easier to claim appropriate exemptions and investments to reduce taxable income.
If You Opt for the Old Tax Regime
Under the old tax regime, you can claim several salary exemptions and standard deductions. Common exemptions and components include:
- House Rent Allowance (HRA)
- Leave Travel Concession (LTC)
- Standard deduction of ₹50,000
- Office and personal allowances
- Professional tax
Additionally, interest or income from other sources—fixed deposits, dividends, or rental income—must be included while computing total income. If you have a home loan, interest on the loan (up to specified limits) can be claimed under the head “Income from House Property” u/s 24.
Example for illustration (values are illustrative):
| Details | Amount (₹) |
|---|---|
| Total salary | ₹10,00,000 |
| Deductions: | |
| HRA exemption | ₹2,00,000 |
| Standard deduction | ₹50,000 |
| Net income | ₹7,50,000 |
| Additions (interest from investments) | ₹10,000 |
| Gross taxable income | ₹7,60,000 |
From gross taxable income you can claim deductions under Sections such as 80C, 80D, 80CCD(1B), and 80TTA to further lower your tax liability.
| Details | Amount (₹) |
|---|---|
| Gross taxable income | ₹7,60,000 |
| Deductions: | |
| Section 80C | ₹1,50,000 |
| Section 80D | ₹50,000 |
| Section 80CCD(1B) | ₹50,000 |
| Section 80TTA | ₹10,000 |
| Net taxable income | ₹5,00,000 |
Depending on applicable rebates such as Section 87A and the tax slabs, the final tax payable could be reduced significantly or brought to zero if conditions are met. (The example above is illustrative.)
If You Opt for the New Tax Regime
The new tax regime provides lower tax rates but eliminates most common exemptions and deductions—HRA, LTA, standard deduction and many others are not available. This typically raises gross taxable income compared to the old regime, which may increase tax liability for taxpayers who rely on deductions.
One deduction allowed under the new regime is Section 80CCD(2) for employer contributions to the National Pension System (NPS):
- Applicable when the employer contributes to NPS on your behalf
- Private sector employees can claim up to 10% of salary
- Public sector employees can claim up to 14% of salary
Example for illustration (values are illustrative):
| Details | Amount (₹) |
|---|---|
| Gross taxable income | ₹10,00,000 |
| HRA exemption | ₹0 |
| Standard deduction | ₹0 |
| Professional tax | ₹0 |
| Net taxable income | ₹9,50,000 |
| Final tax amount | ₹54,600 |
This example shows how the absence of common deductions increases taxable income and tax outgo under the new regime.
Common Salary Exemptions and Their Treatment
Typical salary components and their tax treatment include:
| Element | Tax Rules |
|---|---|
| Basic Salary | Fully taxable |
| Dearness Allowance | Fully taxable (unless retirement benefits link it) |
| House Rent Allowance (HRA) | Exemption up to prescribed limit under the old regime |
| Leave Travel Allowance (LTA) | Exemption for travel costs for limited trips subject to conditions |
| Mobile/Internet Allowance | Exempt if used primarily for work and supported by bills |
| Education Allowance for Children | Specified exemption per child (subject to the prevailing rules) |
| Food Allowance | Limited exemption for meal allowances where applicable |
| Standard Deduction | Flat deduction (currently ₹50,000 under old regime) |
| Professional Tax | Deductible subject to state rules |
Certain loans used for specific purposes—education, home purchase, construction or renovation—can provide tax benefits through interest deductions or eligible exemptions, depending on the loan type and applicable provisions.
Practical Tips to Reduce Salary Tax
- Evaluate both the old and new tax regimes based on your salary components and likely deductions.
- Maximise Section 80C investments (NPS, PPF, life insurance, ELSS, tax-saving FDs) up to the prescribed limit.
- Claim medical insurance premiums under Section 80D where applicable.
- If eligible, claim HRA, home loan interest, and other salary exemptions under the old regime.
- Consider employer NPS contributions and their treatment under Section 80CCD.
FAQs on Saving Tax for Salary Around ₹10 Lakhs
How can I avoid tax on a salary above ₹10 lakhs?
You can minimise tax by understanding your salary components, assessing both tax regimes, and claiming all eligible exemptions and deductions available under the old regime.
How much tax do I pay on a ₹10 lakhs salary?
The tax payable depends on your gross taxable income after exemptions and deductions and on whether you select the old or new tax regime.
How can I pay zero tax on a ₹10 lakhs income?
Paying zero tax on ₹10 lakhs typically requires maximizing permissible deductions and exemptions under the old tax regime and, if eligible, claiming rebates like Section 87A.
How can I reduce my salary tax?
Reduce tax by investing in tax-saving instruments under Section 80C (NPS, LIC, PPF, tax-saving FDs), claiming HRA, and utilising home loan interest deductions and medical premium deductions under Section 80D.
How much income is tax-free according to the Income Tax Act?
Tax-free income thresholds depend on the applicable financial year, slabs, and chosen regime. Under the new regime for FY 2024-25, income up to a specified threshold may attract no tax; check current slabs and rebates to determine your exact liability.