Introduction:
For an ordinary man, paying taxes is not a very enticing job unless they understand the purpose of paying the taxes.
Ever since 1860, the income tax was introduced in India, the medium has been used to recover the losses sustained by the Government. According to the Income Tax Law, every citizen below age 60 years is liable to pay tax on their income. The latest figures confirm that over 8.83 crore unique taxpayers logged in to pay taxes in 2021. Nearly 6.25% out of India’s population file for income tax. The total gross collection of the income tax return for FY 2021-22 amounts to Rs.6,45,679 crores.
Many honest taxpayers have paid income tax to take the country to another level of development. Great!
But yes, paying taxes can be a trouble for those who have higher monthly expenses and limited income sources. To them, tax can appear to be a burden. Therefore, individuals like these must plan to save income tax so that they are able to smartly save money for their future aspirations.
You will further read the ways to not pay taxes according to your income level. But before exploring options for income tax deductions, you should be aware of the total liability that you will incur.
Here let us find out what will be the income tax liability if your annual income is 10 lakhs per annum.But before that let us read about why individuals do not want to pay taxes.
Table of Content
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- Why do individuals not want to pay taxes?
- Tax liability explained as per Old/New Tax Regime.
- What is the tax liability for individuals with annual income 10 LPA?
- Ways to not pay taxes till 10 LPA income.
- Some other standard tax saving options under Section 80C.
- Conclusion.
Why do individuals not want to pay taxes?
Individuals in India are often not interested to pay taxes as they feel:
- Their income levels are not sufficient to meet their expenses.
- Everyone is not paying taxes and hence even they can escape from their responsibilities.
- The rate of development in the nation is not evident, in the name of which, the tax is deducted.
- Tax rates are too high as that wipes away the profits from the income.
No matter what an individual might feel, they are liable to pay income tax for the development of the nation at large. Let us now understand what is the common tax liability applicable according to the income bracket.
Tax liability explained as per Old/New Tax Regime
With the start of the new financial year, individuals have been confusing their information between the old and the new tax regime. A simple tip is to follow the methods that help you save maximum tax deductions.
Let us now sneak into the income tax slabs under the old and the new tax regimes.
| Income Tax Slab | Old Tax Regime | New Tax Regime (For FY 2020 – 21) |
| Up to Rs. 2,50,000 | NIL | NIL |
| Rs. 2,50,001 to Rs. 5,00,000 | 5% of total income exceeding Rs. 2,50,000
(Tax rebate of Rs. 12,500 available under Section 87A) |
5% of total income exceeding Rs. 2,50,000
(Tax rebate of Rs. 12,500 available under Section 87A) |
| Rs. 5,00,001 to Rs. 7,50,000 | Rs. 12,500 + 20% of total income exceeding Rs. 5,00,000 | Rs. 12,500 + 10% of total income exceeding Rs. 5,00,000 |
| Rs. 7,50,001 to Rs. 10,00,000 | Rs. 37,500 + 15% of total income exceeding Rs. 7,50,000 |
Income Tax Slab
| New | Income | Old |
| NIL | Up to Rs. 5 lakhs | NIL |
| 10% | Rs. 5 lakhs to Rs. 7.5 lakhs | 20% |
| 15% | Rs. 7.5 lakhs to Rs. 10 lakhs | 20% |
| 20% | Rs. 10 lakhs to Rs. 12.5 lakhs | 30% |
The slabs indicate the percentage of income tax. Let us now see how much tax will be payable according to the new and the old regime.
| Income Tax (Without claiming any deductions and exemptions) | Income Tax Currently |
| Rs.1,12,500/- | Rs.75,000/- |
It appears here that if you choose a new tax regime you will result in tax savings of Rs.37,500/- more (Rs.1,12,500-Rs.75,000).
Picking the new tax regime can save you more money. But that will not be enough.
Put your money to use wisely and save more to reduce income tax liability. Let us explore ways to not pay taxes till 10 lakh per annum.
What is the tax liability for individuals with annual income 10 LPA?
Considering Rahul aged 35 years has a total income of Rs.10,00,000/-. He has made an investment buying a life insurance with premium Rs.1,50,000/-. Rahul also put his money in the National Pension Scheme. The total tax deduction allowed under the scheme is Rs.50,000/-.
Now, let us compute the tax liability.
| Particulars | New Regime | Old Regime |
| Gross Total Income | Rs.10,00,000 | Rs.10,00,000 |
| Less: Deduction under Section 80C | 0 | Rs.1,50,000 |
| Less: Deduction under 80CCD | 0 | Rs.50,000 |
| Less: HRA deduction | 0 | Rs.1,50,000 |
| Taxable Income | Rs.10,00,000 | Rs.6,50,000 |
Taxes payable as per the slab rate
| Rs.0-Rs.2,50,000 | Rs.0 | Rs.0 |
| Rs.2,50,001- Rs.5,00,000 | Rs.12,500 | Rs.12,500 |
| Rs.5,00,001-Rs.7,50,000 | Rs.25,000 | Rs.40,000 |
| Rs.7,50,001-Rs.10,00,000 | Rs.37,500 | Rs.0 |
| Total Taxes Payable | Rs.95,000 | Rs.52,500 |
The numbers indicate that Rahul will have to pay quite a good amount of tax from his income. He then started to explore ways to not pay taxes or reduce his tax liability.
Ways to not pay taxes till 10 LPA income.
Looking for ways to not pay taxes till your annual income of 10 lakh per annum? If you are not doing this, trust you are not being wise. These are the investment options to save taxes.
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Take a home loan.
When you apply for a home loan, that is to own your home. You can avail of income tax deduction under Section 80C of the Income Tax Act, 1961. Section 80C allows you to deduct up to 1.5 lakh of your total annual income to repay the principal borrowed amount.
Section 24(b) allows for a tax exemption on the interest portion of a home loan up to Rs 2 lakh.per year.
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Buy a life insurance policy.
Life insurance policy, in common, is considered an investment tool. Therefore, the premium you pay under the life insurance policy is eligible for tax deduction under Section 80C of the Income Tax Act 1961. The total deduction allowed under the policy is up to Rs.1.5 lakhs.
There are different products that you can buy. For example, you can buy a term insurance policy, a pure risk policy. The term life insurance pays the nominee if the life insured passes away during the policy term. The claim amount received by the nominee after the death of the life insured is also tax exempted under Section 10(10D).
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Get a health insurance policy.
The medical inflation in the country is marked at 15-18%. The cost of treatment, medicines, tests and others is rising. If you want to avail quality medical facilities buying a health insurance policy would be a suitable option. A health insurance policy prevents the drainage of your family’s savings. The premium you pay is also eligible for tax deduction under Section 80D of the Income Tax Act. The tax benefit is applicable as under:
| Eligibility | Deduction under Section 80D |
| Health insurance for individuals, spouse, children (below 60 years) | Up to ₹25,000 |
| For individuals and parents (below 60 years) | Up to ₹50,000 (₹25,000 + ₹25,000) |
| For individuals (below 60 years) and Senior Citizen parents | Up to ₹75,000 (₹25,000 + ₹50,000) |
| For individuals and parents (both above 60 years) | Up to ₹1,00,000 (₹50,000 + ₹50,000) |
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Invest in ELSS (Equity-Linked Savings Scheme)
The equity-Linked Saving Scheme (ELSS) is an investment tool that allows you to invest in the stock market. It comes with a three-year lock-in period and is eligible for tax deductions up to Rs.1.5 lakhs.
You can save up to Rs.46,800/- a year in taxes. ELSS provides the highest return if you consider all options under Section 80C. Making the investment in ELSS gives you dual benefits of tax deductions and wealth accumulation over time. The financial instrument gives you two times returns of fixed deposit and PPF. It is liked by many investors as there is an option to invest as low as Rs.100 a month.
When you invest in ELSS and your capital gains are below Rs.1 lakh, you do not have to pay any tax on the profits earned. A total investment of Rs.1.5 lakhs can be claimed for tax rebate under Section 80C of the Income Tax Act,1961.
Before you invest in ELSS, you must understand that the instrument does not provide guaranteed returns as the equity fund’s performance depends on underlying securities. In addition, note that you will not be able to redeem the holdings until the completion of this period.
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Reduce tax liabilities and invest in government schemes
You can also invest in government schemes that offer you high returns on total investments. Some of the popular government schemes under which you can save taxes are:
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
- Sukanya Samriddhi Yojna (SSY)
- Senior Citizens Savings Scheme (SCSS)
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Invest in Unit Linked Investment Plan (ULIP)
A unit-linked investment plan is a dual benefit life insurance product that provides you life protection and the option to invest. The portion of the premium you pay under the life insurance policy is kept for life cover. Another bit of it is invested in market funds that give you high returns. You can invest in equity, debt, or combined funds.
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Claim tax exemption for a rented house
Under House Rent Allowance, Section 10 provides for tax exclusions. It is just that your salary must include the HRA component. The total tax exemption will be calculated as the minimum of the three components that include:
- Annual HRA received
- Total annual rent-10% of the basic salary
- 50% of the yearly salary if the individual resides in a metropolitan area.
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Donate and save some tax
If you make donations to some organizations in cash, the amount is eligible for deduction under Section 80G. The total tax waiver allowed is Rs.2000/-.
Some other standard tax saving options under Section 80C
These are the financial instruments that enable you to allow deductions under Section 80C:
- Investment in Employee Provident Fund (EPF)
- Investment in Public Provident Fund (PPF)
- Investment in Equity Linked Savings Scheme (ELSS)
- Investments in National Savings Certificates (NSC)
- Investment in tax-saving fixed deposits (FDs)
- Investment in Senior Citizen Savings Scheme (SCSS)
- Investment in Sukanya Samriddhi Yojna
- Payment of children’s tuition fees
- Repayment of home loans
Conclusion:
Tax savings helps you to save money for long-term purchases. However, it does not mean you avert the responsibility to pay taxes. Instead, it refers to utilizing the money otherwise paid in taxes for your own good. You can buy life insurance policies that will pay you when you are in need and at the same time reduce your tax liability. Before computing your tax liability and understanding its implication is essential. If you are a novice and do not feel confident about taxes, you must consult your tax advisor. For further information on ways to save tax, you can also read life insurance and how it helps keep income tax.
