Tax Saving Tips for an Annual Income of Rs. 7 Lakhs

Indian tax structure⁷
 

The Indian tax structure is well-developed. To streamline the assessment and collection process of income tax, the authority of the local, state and central government is clearly defined. Although you cannot avoid taxes as a taxpayer, there are multiple ways to cut back your taxability, such as investing in specific financial products, funds, and retirement plans. Smart planning can help you achieve your short as well as long-term financial goals.

Depending on the income tax slab you fall under, there are certain tax-saving tips that you must explore. Let’s explore some tips on how to save tax on 7 lakh income. Being financially savvy can not only help you get tax benefits but also fulfil various financial goals.
 

Understanding the tax slabs
 

Before we move ahead with tax-saving tips, let’s first understand the tax slab. For the FY 2024-25 (AY 2025-26), the tax structure for the new regime is as follows:¹

 

Remember:
 

1. Under the New Tax regime, only a limited number of deductions and exemptions are available to taxpayers, while under the Old Tax Regime, the list of deductions and exemptions is wider⁸.
2. Standard deductions have been raised from Rs. 50,000 to Rs. 75,000.²
3. The deduction for family pensions has been increased from Rs. 15,000 to Rs. 25,000.²
    

Annual income of Rs.7 lakhs: Tips to save taxes
 

If you have an annual income of Rs. 7 lakhs or more, you are liable to pay income tax. However, if you make smart financial choices, you can save a significant amount on taxes. Let’s take a look at tax saving tips for income tax for 7 lakhs per annum:
 

● Invest in a life insurance plan.
 

When you opt for a life insurance plan to build a safety net for your loved ones, you are also saving on taxes. Under section 80C of the Income Tax Act, the premiums that are paid towards the life insurance plan are eligible for tax deduction. Here, you can save up to Rs. 1.5 lakh⁴ in a year (in the case of the old tax regime).

Additionally, under Sec 10(10D) of the Income Tax Act, there are tax exemptions on the death benefit and the amount received at the time of the policy’s maturity,³ subject to the satisfaction of conditions.  So, life insurance provides coverage for the life assured along with tax benefits against the premiums paid.
 

● Explore health insurance plans.
 

In today’s time, when healthcare expenses are at an all-time high with medical inflation at 14%⁹¹⁰, you could avail of it is important to opt for a health insurance coverage to safeguard your familyplan. Under section 80D of the Income Tax Act and in the case of the old tax regime, you individual or HUF can avail yourself of up to Rs. 25,000 tax benefits annually in one financial year on premiums paid and up to Rs. 50,000 if the health insurance is for senior citizens (above the age of 60 years).⁴

Note: It is applicable to individuals and HUF only.
 

● Opt for tax-saving investments.
 

Several tax-saving investments can help you build an impressive corpus while also saving significantly on taxes in the case of the old tax regime. Additionally, you can also create a valuable investment portfolio with these investments. To give you an insight into investments that promise tax savings, here are some of the deductions as per Section 80 of the Income Tax Act: ⁴

under the Old Tax Regime:

 

● Consider donations to charity.
 

To encourage donations to different charities, the government of India promises considerable tax deductions. Under section 80G of the Income Tax Act of 1961, you can enjoy tax deductions. You can check the updated list of funds and charities that are eligible forpromise 100% tax deductions without any qualifying limits⁵.

Additionally, there is a specific list of donations that are eligible for  promises 50% tax deductions without any qualifying limit⁵. In this good cause, the government ensures your effort doesn't go unappreciated!
 

● Capitalise from home loan payments
 

Under the regulations of the Income Tax Act of 1961, you can avail of tax benefits on interest paid against a home loan. Know that the deductions remain the same under the old tax regime without any restrictions⁶. However, if you have opted for the new tax regime, there are certain limitations that you must be aware of: ⁶

• No deduction is available under section 24(b) for the payment towards the interest component of the home loan if it is a self-occupied property.
• No deduction is available under section 80C of the Income Tax Act for payment towards the principal component of the home loan, stamp duty and registration charges.

Note: The maximum tax deduction that can be claimed under Sec 80C in this regard is ₹1,50,000.
 

Conclusion

Paying taxes if you come under any of the tax slabs is a duty that you must comply with to avoid penalties or legal charges. However, what you can do to reduce tax liabilities is invest your income in tax-saving investments and life insurance plans. You can explore numerous options to find investment plans that help build a sizable corpus and promise tax savings. So, before you try to understand how to save tax for 7 lakhs in India, it is important to remember that you need to plan your financial year early on to ensure maximum tax benefits and a hassle-free year ahead!
 

FAQs
 

1. What is the income tax limit for 7 lakh?
 

As per the new tax regime, for individuals (under 60 years of age) and HUF, for an income between Rs. 3 lakhs and Rs. 7 lakhs, the tax slab rate is 5%. However, making use of Section 87A⁸⁹ can reduce your taxability to zero.

2. How can I calculate my income tax?
 

The easiest and quickest way to calculate your income tax is to use the income tax calculator online on the Income Tax portal⁸.
 

Sources: