Tax on Rs. 50 lakh salary in India

The number of individuals earning over Rs. 50 lakh annually has surged by 25%, with nearly 10 lakh people now in this income bracket. For income up to Rs. 50 lakh, no surcharge applies; however, a surcharge of 10% applies for income above Rs. 50 lakh, 15% above Rs. 1 crore, 25% above Rs. 2 crore, and 37% above RS. 5 crore.
EXPLORE FUNDS
How to save tax on Rs. 50 lakh salary
EXPLORE FUNDS
3 min
16-October-2024

For individuals earning a salary above Rs. 50 lakhs, strategic tax planning is essential. As per the Income Tax Act of 1961, there are various methods to reduce taxable income and maximise savings. Commonly, these include investing in tax-saving instruments under Section 80C, such as the Public Provident Fund (PPF), National Savings Certificate (NSC), and Equity Linked Saving Schemes (ELSS).

Additionally, you can make contributions to the National Pension System (NPS) under Section 80CCD and claim deductions for health insurance premiums under Section 80D. Let us study these sections in detail and explore how to save tax for a salary above Rs. 50 lakhs

Tax saving options under the new tax regime

It is essential to note that under the new tax regime, individuals face a reduced scope for claiming exemptions or deductions. It offers a simplified tax structure by limiting these benefits. However, the new regime offers lower tax slab rates, which incentivises taxpayers who do not have many deductions to claim.

Despite this, the government has still allowed for the following deductions:

  • Taxpayers can claim a fixed deduction of Rs. 50,000 from their salary income under Section 115BAC
  • Gifts received up to Rs. 50,000 are exempt from tax
  • Contributions made by an employer to the National Pension System (NPS) are not taxed
  • Any gratuity received by an employee is tax-free
  • The amount received for leave encashment is exempt from tax
  • Individuals with disabilities can claim transport allowances to cover commuting costs
  • Allowances received to cover travel expenses incurred as part of employment are deductible
  • Any compensation received to cover travel expenses due to job-related tours or transfers is exempt from tax
  • Daily allowances received to cover regular charges or expenditures due to absence from the regular place of duty are tax-exempt
  • Certain job-related perquisites or benefits provided by the employer are exempt if used for official purposes
  • Exemptions are available for amounts received under:
    • Gratuity (Section 10(10))
    • Schemes related to Voluntary retirement (Section 10(10C))
    • Leave encashment (Section 10(10AA))
  • Interest paid on home loans for rented-out properties can be deducted
  • Deductions can be claimed for employer contributions to the National Pension Scheme (Section 80CCD(2))
  • A deduction is available on family pension income (Section 57(iia))

Also read: How to Save Tax on 9 Lakhs Salary

Tax saving options under the old tax regime

Under the old tax regime, taxpayers have access to a variety of deductions and exemptions. Let us look at some key tax-saving options:

  • Deduction under Section 80C
    • This section allows for a deduction of up to Rs. 1.5 lakhs on investments in a range of financial instruments, such as
      • Public Provident Fund (PPF)
      • Employees' Provident Fund (EPF)
      • National Pension System (NPS)
      • Equity Linked Saving Schemes (ELSS)
      • National Savings Certificate (NSC), and
      • 5-year tax-saving fixed deposits
  • Deduction under Section 80CCD(1B)
    • In addition to Section 80C, an extra deduction of up to Rs. 50,000 is available for contributions to the NPS Tier-1 account.
  • Deduction under Section 80D
    • Premiums paid for health insurance for self, spouse, dependent children, and parents are deductible up to Rs. 25,000.
    • For senior citizens, this limit is increased to Rs. 50,000.
  • Deduction under Section 80E
    • The interest paid on education loans taken for higher education is fully deductible
  • Deduction under Section 24B
    • Interest paid on home loans is deductible up to Rs. 2 lakhs
  • Deduction under Section 80G
    • Donations made to specified charitable institutions are eligible for deductions
    • The quantum is capped at either 50% or 100% of the donation amount, depending on the status of the institution
  • Deduction under Section 80TTA
    • Interest earned on savings accounts is deductible up to Rs. 10,000
  • Deduction under Section 80TTB
    • Senior citizens can claim a deduction of up to Rs. 50,000 on interest earned from:
      • Banks
      • Post offices
      • Co-operative societies

It is worth mentioning that the old tax regime is advantageous for individuals with substantial investments that qualify for these deductions. By claiming them, taxpayers can reduce their taxable income significantly.

Explore Life Insurance policies

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Explore suitable life insurance plans through Bajaj Finance Insurance Mall, which features a curated selection from leading insurers, all offered at competitive prices in partnership with Bajaj Finance. With a 100% digital, hassle-free process and minimal paperwork, you can access these plans anytime, anywhere.

Part 1- Exemptions

The table below shows the tax treatment of each component. This will help you understand which parts of your salary are taxable and which can be exempt from tax.

Salary component

Taxability

Basic

Fully-taxable

Dearness Allowance (DA)

Fully-taxable

House Rent Allowance (HRA)

To determine the exempt House Rent Allowance (HRA), the least of the following amounts is considered:

  1. The actual House Rent Allowance received.
  2. The actual rent paid minus 10% of the salary.
  3. 50% of the salary for metro cities or 40% for non-metro cities.

( Taxpayers must note that “salary” comprises Basic Salary and Dearness Allowance)

Leave Travel Allowance (LTA)

Exempt for actual travel ticket expenses for two trips in 4 years under Section 10(5)

Mobile/Internet Reimbursement

Exempt if used predominantly for office purposes and proofs/bills are submitted.

Children's Education Allowance

Exempt up to Rs. 4,800 per child per annum (maximum 2 children).

Children's Hostel Allowance

Included with Children's Education Allowance as part of the exemption

Food
  • Exempt up to Rs. 50 per meal (maximum 2 meals a day)
  • Annually, this amounts to Rs. 31,200

Professional Tax

Exempt up to Rs. 2,400 (varies from state to state).


Part 2- Deductions

Under the old tax regime, there are several deductions available for individuals with a salary above Rs. 10 lakhs. These deductions help reduce the overall tax burden by allowing taxpayers to subtract eligible expenses and investments from their total taxable income.

Each deduction has specific terms and conditions. Let us look at some popular deductions and related conditions:

Deduction

Section

Details

Health Insurance Premium

80D

 You can claim deductions on health insurance premiums paid through non-cash modes as follows:
  • Up to Rs. 25,000 for premiums paid for yourself, spouse, dependent children, or parents
  • Up to Rs. 50,000 if the family members covered or your parents are senior citizens (aged 60 years or above)

Education Loan Interest

80E

 The interest deduction is available for 8 years from the year of repayment for higher education loans for:
  • Self
  • Spouse
  • Dependent children or
  • A student of whom you are the legal guardian

Charitable Donations

80G

50% or 100% of the eligible amount

Tax-saving instruments

80C

Tax benefits up to Rs. 1.5 lakhs per year

Disabled dependents

80DD

 Medical expenses for disabled dependents:
  • If your disability is 40% to 79%, you will get a deduction of Rs. 75,000
  • If your disability is 80% or more, you will get a deduction up to Rs. 1,25,000

Home Loan Payments

80C/24B
  • For the principal amount paid, you can claim up to Rs. 1.5 lakhs under Section 80C
  • For the interest amount paid, you can claim up to Rs. 2 lakhs under Section 24B

Standard deduction

16(ia)

Rs. 50,000, given without any restriction


Also read: How to Save Tax for Salary Above 7 Lakhs

How do you save taxes above 50 lakhs in annual salary?

To save taxes on an annual salary above Rs. 50 lakhs, you can practice several strategies and claim some key deductions. Let us look at them:

Maximise exemptions and deductions

You can opt for the old regime and claim several deductions available under Chapter VI-A and other sections of the Income Tax Act. Let’s have a look at them:

  • Utilise Section 80C (maximum deduction up to Rs. 1.5 lakhs) for making investments
    • Make investments in:
      • Public Provident Fund (PPF)
      • Employee Provident Fund (EPF), and
      • Voluntary Provident Fund (VPF)
    • Investments in ELSS funds to combine tax savings with potential market-linked returns
    • Get a deduction for life insurance premiums paid for policies covering self, spouse, and children
    • Claim amount paid towards principal repayment of home loan
  • Utilise Section 80D for health insurance:
    • You can get deduction for premium paid towards health insurance of
      • Self
      • Spouse
      • Dependent Children
    • The maximum deduction available is Rs. 25,000
    • However, this limit gets increases to Rs. 50,000 if any insured is a senior citizen
  • Claim interest paid on home loan u/s Section 24B
    • You can get a deduction up to Rs. 2 lakhs on interest paid on home loans for self-occupied property.
    • For let-out property, the entire interest paid can be claimed as a deduction.
  • Claim Leave Travel Allowance (LTA)
    • LTA can be claimed twice within a block of four years for travel expenses within India for self and family.
  • Deductions for donations (Section 80G)
    • For all your charitable contributions, you can get deductions of 50% or 100% of the donated amount to specified charitable institutions
  • Contributions made to the National Pension System (NPS)
    • Beyond the Rs. 1.5 lakhs under Section 80C, you can get an additional Rs. 50,000 under Section 80CCD(1B) for making contributions under NPS
  • Utilise House Rent Allowance (HRA)
    • If you live in rented accommodation, you can claim HRA exemptions
    • The maximum amount allowed as a deduction is the lower of
      • Actual HRA received
      • The actual rent paid minus 10% of the salary
      • 50% of salary (metro cities) or 40% (non-metro cities)
  • Some other allowances and perquisites
    • A standard deduction of Rs. 50,000 is available for all salaried employees without any restrictions
    • The reimbursements you get for mobile/internet are exempt if used for official purposes

Additional strategies

When your salary exceeds Rs. 50 lakhs, it is necessary to perform appropriate tax planning Let us look at some additional strategies to lower your tax liability:

  • Tax-saving bond
    • Consider investing in tax-saving bonds issued by entities like NHAI, REC, or PFC.
    • Interest earned on these bonds is tax-free, up to a certain limit
  • Investment in equity
    • If you have a higher risk appetite, consider investing in direct equity or equity mutual funds for potential long-term capital gains.
    • Note that investments held for more than one year qualify for long-term capital gains tax exemption.
  • Health Spending
    • Opt for health insurance policies with higher coverage to cover medical expenses for you and your family
    • Additionally, expenses incurred on preventive health check-ups can be claimed as deductions under Section 80D
  • Employee Stock Options (ESOPs)
    • If you receive ESOPs as part of your compensation, understand the tax implications and timing of exercising them
    • Proper planning can help minimise tax liability
  • House renting strategy
    • If you own multiple properties, consider renting out the property that provides maximum tax benefits
    • Always remember that you can claim deductions for interest paid on housing loans for rented properties without any upper limit
  • Tax-free perquisites
    • Check out the various tax-free perquisites provided by your employer such as:
      • Food coupons
      • Medical reimbursements
      • Transportation allowances
  • Invest in pension plans
    • Apart from NPS, consider investing in pension plans offered by insurance companies.
    • Contributions made towards pension plans are eligible for deductions under Section 80CCC.
  • Education expenses for children
    • Apart from claiming deductions for interest on education loans, consider expenses like tuition fees, which are eligible for deductions under Section 80C.

Also read: How to Save Tax for Salary Above 30 Lakhs

How to plan your taxes for income above 50 lakhs?

Planning taxes for incomes above Rs. 50 lakhs demands strategic utilisation of deductions and exemptions. This will help you reduce your tax liabilities and improve your financial management.

To plan effectively, you can use the various provisions of the Income Tax Act, such as deductions under Section 80C and exemptions like HRA and LTA. Let’s understand them:

1. Tax deductions

Under the various provisions defined under Chapter VI-A, you can claim several tax deductions as shown below:

Deductions

Limits and Eligibility Criteria

Health insurance premium u/s 80D
  • For self, spouse, and children, you get a deduction of Rs. 25,000.
  • For parents, you get Rs. 25,000 (if parents are senior citizens, you get Rs. 50,000)

Donations made u/s 80G
  • 100% of the donation the amount is allowed as a deduction if the charitable institution is notified
  • Otherwise, you get a maximum of 50%

Education loan interest u/s 80E
  • You can claim interest paid against an education loan for up to 8 years

Investments u/s 80C
  • You can make several tax-saving investments and claim a maximum deduction of Rs. 1,50,000
  • Some common instruments are NSC, PPF, ELSS, Tuition fees, and more

Principal and interest paid towards home loan
  • For payments made against the principal amount, you get up to Rs. 1,50,000 as deduction u/s 80C
  • For interest payments, you get up to Rs. 2,00,000 u/s 24B

Amount received upon maturity of life insurance policies

The maturity proceeds from life insurance policies are exempt from tax if the sum assured meets certain criteria:

  • For policies issued before April 1, 2012, maturity proceeds are tax-exempt if the sum assured is at least 20%.
  • For policies issued after April 1, 2013, and if the policyholder has a disability or disease, maturity proceeds are tax-exempt if the sum assured is at least 15%.
  • For policies issued after April 1, 2012, maturity proceeds are tax-exempt if the sum assured is at least 10%.


2. Tax exemptions

It is noteworthy that several components of your salary are exempt from tax as per the Income Tax Act. See the table below:

Component of salary

Taxability

Basic salary

Completely taxable

Dearness allowance

Completely taxable

House rent allowance

Exempt (up to a specific limit)

Mobile/internet reimbursement

Exempt (only if used entirely for official purposes)

Children's education and hostel allowance

 Exempt up to Rs. 4,800 per child
Maximum 2 children are covered


Also read: How to Save Tax for Salary Above 20 Lakhs

How to save on income tax above Rs. 50 lakhs annual salary?

By implementing effective tax-saving strategies, you can substantially lower your tax liability. Let’s see how:

1. Explore tax-saving avenues

  • Utilise deductions under Section 80C for investments like PPF, ELSS, and NPS.
  • Consider additional deductions under Sections 80D, 80E, and 80G for:
    • Health insurance premiums
    • Education loan interest, and
    • Charitable donations

2. Optimise Section 80D deductions

  • Invest in comprehensive health insurance policies for self and family.
  • Maximise deductions by covering premiums for parents, especially if they are senior citizens.

3. Maximise home loan benefits

  • Claim deductions for both principal and interest repayments under Sections 80C and 24B, respectively.
  • Consider additional benefits for affordable housing loans under Section 80EEA.

4. Optimise House Rent Allowance (HRA) benefits

  • Ensure proper documentation of rent payments.
  • Always claim HRA exemptions as per the prescribed limits.
  • You can also consider salary restructuring to maximise tax-free HRA components.

5. Utilise Leave Travel Allowance (LTA)

  • Plan vacations within India and claim LTA exemptions for actual travel expenses.
  • Utilise LTA benefits for yourself and eligible family members.

6. Embrace the perks of the National Pension System (NPS)

  • Invest in NPS for additional deductions under Section 80CCD(1B) up to Rs. 50,000.
  • Benefit from tax-deferred growth and retirement planning advantages offered by NPS.

7. Strategise your approach to capital gains

Conclusion

Effective tax planning is crucial for individuals with salaries above Rs. 50 lakhs to optimise savings and reduce tax liabilities. One can maximise tax benefits by claiming several deductions under Section 80C, 80D, 80E, and other provisions of the Income Tax Act. Also, it is essential to calculate tax liabilities under both income tax regimes and opt for the one offering minimum tax liability.

By strategically utilising the exemptions and available deductions, you can significantly lower your tax burden and achieve better financial outcomes. Are you looking to invest in mutual funds? The Bajaj Finserv Platform has listed 1,000+ top-rated mutual fund schemes on its digital platform. Check them out today!

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Frequently asked questions

How much tax do I pay on 50 lakhs?
The amount of tax payable on Rs. 50 lakhs varies based on your age, the type of regime chosen, and the different kinds of incomes earned. However, roughly, your tax liability comes out to be Rs. 13,50,000 in the old regime (without any deduction) and Rs. 12,87,000 in the new regime
How can I save tax if my salary is more than 50 lakhs?
You can explore tax-saving investments like PPF, NPS, and ELSS under Section 80C. Also, you can opt for several other deductions available under the Income Tax Act, such as interest in home loans (Sec 24B), a standard deduction of Rs. 50,000 (Sec 16(iia), and more.
Which tax regime is better for above 50 lakhs?
For incomes above Rs. 50 lakhs, the old tax regime with deductions is more advantageous compared to the new tax regime without deductions. However, the selection entirely depends on individual circumstances and tax planning strategies.
How can I maximise deductions to reduce my tax liability?
You can maximise deductions by investing in tax-saving instruments such as PPF, ELSS, and NPS and utilising deductions available under various sections of the Income Tax Act.
Do I need a tax advisor for income above 50 lakhs?
Engaging a tax advisor can be beneficial. They can create tailored tax planning strategies for you while ensuring compliance with complex tax regulations
What are some common tax planning mistakes to avoid?
Always claim the deductions you are eligible for as per the prescribed limit. Also, stay updated with the latest tax laws and don’t ignore tax-saving instruments.
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