Tax-Efficient Salary Planning for Professionals
Introduction
Effective tax planning is not merely about reducing one's immediate tax outgo; it is an essential component of long-term financial planning. With India's evolving tax structure and the introduction of a revamped New Tax Regime, individual taxpayers are now faced with the decision to choose between two distinct frameworks—each with its own advantages and trade-offs. For the financial year 2025–26, the New Tax Regime has been made the default system, offering lower tax rates but without the benefit of most exemptions and deductions available in the Old Regime. Consequently, a careful evaluation of one's income, investments, expenses, and financial responsibilities is necessary to determine the more beneficial tax regime.
As income levels rise, the scope for legitimate tax-saving opportunities broadens significantly. Taxpayers with modest salaries can benefit from straightforward deductions under Sections 80C and 80D, while those with higher incomes may consider more sophisticated strategies such as creating Hindu Undivided Families (HUFs), establishing private trusts, or leveraging company structures to distribute income efficiently. This article presents a detailed, income-wise approach to tax planning—providing practical guidance on how individuals earning across different income brackets, from ₹5 lakhs to over ₹10 crores, can optimize their tax liability using legitimate provisions under Indian tax law.
Income Bracket: ₹5 – ₹10 Lakhs
Preferred Regime:
Old Regime (if claiming deductions), else New Regime
Key Deductions:
- Section 80C: ₹1.5 lakh (PPF, ELSS, LIC, 5-year FD)
- Section 80D: ₹25,000 – ₹75,000 (Health Insurance)
- Section 80CCD(1B): ₹50,000 (NPS)
Suggestion:
If you are investing in tax-saving instruments, the Old Regime provides better net benefits.
Income Bracket: ₹10 – ₹20 Lakhs
Preferred Regime:
Old Regime (if availing home loan/HRA/NPS)
Key Deductions:
- 80C: ₹1.5 lakh
- 80D: ₹25,000 – ₹75,000
- 80CCD(1B): ₹50,000
- Section 24(b): ₹2 lakh (Home Loan Interest)
- HRA Exemption: Based on rent paid
Suggestion:
If claiming all major deductions, the Old Regime becomes more cost-effective despite higher base rates.
Income Bracket: ₹20 – ₹30 Lakhs
Preferred Regime:
Old Regime (if eligible for full deductions)
Key Strategies:
- 80C + 80CCD(1B) + 80D + Home Loan Interest: Up to ₹5 lakh
- NPS Employer Contribution (80CCD(2)): Up to 10% of salary
- Capital Gains Planning: Invest in 54EC Bonds for exemptions
- HRA: Large component can be claimed if paying rent
Suggestion:
Continue structured investing (NPS, housing) and leverage employer contributions to reduce tax impact.
Income Bracket: ₹30 – ₹50 Lakhs
Preferred Regime:
Old Regime with Strategic Structuring
Key Strategies:
- Create HUF: Add separate tax identity for investments
- Section 24(b): Maximize home loan benefits
- Reimbursements: Structure salary with components like LTA, fuel, meal coupons
- Capital Gains Harvesting: Sell equity within ₹1 lakh gain/year
Suggestion:
Hire a tax advisor to explore entity structuring (like HUF) and use split-income approaches to reduce liability.
Income Bracket: ₹50 – ₹70 Lakhs
Preferred Regime:
Old Regime + Business Structuring
Key Strategies:
- Setup Private Limited Company/LLP: Pay yourself a mix of salary + dividend (lower effective tax rate)
- Tax-Free Bonds: Invest in tax-free PSU bonds
- Gift Income Planning: Shift investments to spouse/parents in lower tax brackets
- International Planning: Use DTAA if earning from abroad
Suggestion:
As income increases, strategic allocation of business income via entities becomes crucial for tax efficiency.
Income Bracket: ₹70 Lakhs – ₹1 Crore
Preferred Regime:
Old Regime + Trust/Entity Setup
Key Strategies:
- Create Family Trust: For succession and tax-efficient wealth distribution
- NRI/Foreign Income: Use DTAA to avoid double taxation
- Advance Tax Payment: Prevents interest penalties under Sections 234B/C
- Perquisite Management: Car leases, business-class travel through company books
Income Bracket: ₹1 Crore – ₹10 Crores
Preferred Regime:
Old Regime with Comprehensive Wealth Management
Advanced Planning Strategies:
- Setup Family Office: For central wealth, tax and estate planning
- Create Section 8 (Charitable) Trust: Donations exempt under Section 80G
- Alternate Investment Funds (AIFs): With better post-tax returns
- International Diversification: Use LRS for tax-optimized foreign investing
- Succession Planning: Through Wills, Trusts, and Asset Nomination
Conclusion
Tax planning should be tailored not just to income but also to life stage, asset goals, and financial responsibilities. Here are some closing recommendations:
General Tips for All Brackets:
- Start planning from April, not March.
- Maintain documented proofs of all deductions.
- Consult a SEBI-registered investment advisor or CA for income above ₹30L.
- Use Form 10-IEA to opt in/out of the new regime before the due date.
This comprehensive guide is designed to provide a practical understanding of how to navigate the tax planning process effectively in India, considering both the Old and New Tax Regimes. Proper tax planning can lead to significant savings, especially for those in the higher income brackets, while optimizing investment and financial strategies.
