How to Save Tax on a Salary of ₹12 Lakhs
- ayush kumar
- Dec 28, 2024
- 3 min read
Saving tax on a salary of ₹12 lakhs is possible with the right combination of tax exemptions, deductions, and strategic planning. Here's a guide to help you minimize your tax liability and choose the best tax regime for your situation.
Tax Slabs Under the Old and New Regimes
Old Tax Regime (2024)
Income Slab | Tax Rate |
Up to ₹2,50,000 | Nil |
₹2,50,001 – ₹5,00,000 | 5% |
₹5,00,001 – ₹10,00,000 | 20% |
Above ₹10,00,000 | 30% |
New Tax Regime (FY 23-24)
Income Slab | Tax Rate |
Up to ₹3,00,000 | Nil |
₹3,00,001 – ₹6,00,000 | 5% |
₹6,00,001 – ₹9,00,000 | 10% |
₹9,00,001 – ₹12,00,000 | 15% |
₹12,00,001 – ₹15,00,000 | 20% |
Above ₹15,00,000 | 30% |
Tax Calculation on ₹12 Lakhs Salary
Example: Ms. Aria’s Gross Salary
Gross Salary: ₹12,00,000
1. Tax Liability Under Old Regime
Deductions and Exemptions Claimed:
HRA: ₹75,000
LTA: ₹20,000
Standard Deduction: ₹50,000
Professional Tax: ₹2,400
Section 80C (Investments): ₹1,50,000
Section 80D (Health Insurance Premium): ₹25,000
Section 80E (Education Loan Interest): ₹25,000
Tax Calculation:
Components | Amount (₹) |
Gross Salary (A) | ₹12,00,000 |
Total Exemptions (B) | ₹1,47,400 |
Total Deductions (C) | ₹2,00,000 |
Net Taxable Income | ₹8,52,600 |
Income Slabs | Tax Calculation | Tax (₹) |
Up to ₹2,50,000 | Nil | 0 |
₹2,50,001 – ₹5,00,000 | 5% of ₹2,50,000 | ₹12,500 |
₹5,00,001 – ₹8,52,600 | 20% of ₹3,52,600 | ₹70,520 |
Total Tax Payable | ₹83,020 |
2. Tax Liability Under New Regime (FY 23-24)
Deductions and Exemptions Claimed:
Standard Deduction: ₹50,000
No other deductions/exemptions
Tax Calculation:
Components | Amount (₹) |
Gross Salary (A) | ₹12,00,000 |
Total Exemptions (B) | ₹50,000 |
Total Deductions (C) | ₹0 |
Net Taxable Income | ₹11,50,000 |
Income Slabs | Tax Calculation | Tax (₹) |
Up to ₹3,00,000 | Nil | 0 |
₹3,00,001 – ₹6,00,000 | 5% of ₹3,00,000 | ₹15,000 |
₹6,00,001 – ₹9,00,000 | 10% of ₹3,00,000 | ₹30,000 |
₹9,00,001 – ₹11,50,000 | 15% of ₹2,50,000 | ₹37,500 |
Total Tax Payable | ₹82,500 |
Choosing the Right Tax Regime
Old Regime Benefits: Suitable if you claim multiple deductions and exemptions.
New Regime Benefits: Ideal for those who don’t invest much in tax-saving instruments and prefer a simpler structure.
Tax-Saving Strategies for ₹12 Lakh Salary
1. Invest in Section 80C Options (₹1,50,000)
Maximize the limit under Section 80C with options like:
Public Provident Fund (PPF)
Employees’ Provident Fund (EPF)
National Savings Certificates (NSC)
Equity Linked Savings Scheme (ELSS)
2. Health Insurance Premium (Section 80D)
Claim up to ₹25,000 for health insurance premiums. For senior citizen parents, the limit increases to ₹50,000.
3. Home Loan Interest (Section 24)
Deduct up to ₹2,00,000 on home loan interest under Section 24.
4. Education Loan Interest (Section 80E)
Claim unlimited deductions on the interest paid for education loans for higher studies.
5. Tax-Free Allowances
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
6. National Pension System (NPS)
Claim an additional ₹50,000 under Section 80CCD(1B) by investing in NPS.
7. Charitable Donations (Section 80G)
Deduct donations to eligible charities.
Frequently Asked Questions
1. How can I pay zero tax on ₹12 lakh salary? Under the old tax regime, you can reduce taxable income to zero by claiming all eligible deductions and exemptions.
2. How much tax do I pay under the new tax regime? For FY 23-24, your tax liability would be ₹82,500.
3. What is the basic exemption limit?
Old regime: ₹2,50,000
New regime: ₹3,00,000
Conclusion
Choosing the right tax regime and leveraging all available deductions and exemptions can significantly lower your tax liability. The old regime may be more beneficial if you actively invest in tax-saving schemes. The new regime might be the better option for those looking for simplicity.
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