Filing your income tax return every year is one of the most important things you can do to ensure you fulfil your tax liability. The Indian government has set numerous rules and guidelines under the Income Tax Act of 1961 that provide all the information you need to know to file your ITR effectively. The tax amount you end up paying every year increases with the salary. If you have a higher salary, your tax liability will be higher.
However, you can save tax in numerous ways if your salary is Rs. 20 lakh. Saving taxes on a Rs. 20 lakh salary will help you avoid paying additional taxes. In this blog, you will understand how to save tax for a salary above Rs. 20 lakh to ensure you increase your savings for a better financial future.
Latest update on the new tax regime
The Indian government introduced the Finance Act 2023, which made the new tax regime the default tax regime with effect from the assessment year 2024-25. The new rules came after the Finance Act amended the previous provisions under section 115BAC. The new tax regime has been made the default tax regime for assesses such as individuals, HUFs, associations of persons (AOPs), bodies of individuals (BOIs), and artificial juridical persons.
However, taxpayers still have the option to opt out of the default new tax regime and choose the old tax regime for ITR filing. Here are some of the main updates on the new tax regime:
- For ‘non-business cases’, the taxpayers have the option to choose a different regime every year under section 139(1).
- If a taxpayer has income from business and profession and wants to choose the new tax regime, the taxpayer must furnish Form 10-IEA.
Tax saving options above Rs. 20 lakhs salary - New tax regime
The new tax regime was introduced for taxpayers who wanted to avoid utilising extensive deductions and exemptions available in the old tax regime. Hence, there are limited tax saving options under the new tax regime for saving tax if your salary is above Rs. 20 lakh. Here are the tax-saving options:
Standard deduction |
Basic deduction for salaried individuals |
Section 80CCD(2) |
Employer contribution to NPS |
Section 80CCH |
Investment made in Agniveer corpus |
Section 57(iia) |
Family pension received |
Section 10(10C) |
Voluntary retirement |
Section 10(10) |
Gratuity |
Section 10(10AA) |
Leave encashment |
Section 24 |
Interest on a home loan on the let-out property |
Furthermore, some other deductions under the new regime are as follows:
- Transport allowance is available if you are a specially-abled person.
- A conveyance allowance is provided to cover the expenses incurred for travelling as part of the employment.
Also read: What is Dearness Allowance
Tax saving options above Rs. 20 lakhs salary - Old tax regime
The old tax regime is for taxpayers who want to decrease their tax liability by utilising a host of deductions and exemptions. Hence, there are numerous tax-saving options you can use to save tax on your Rs. 20 lakh salary. Here are the tax-saving options:
Section 80D - health insurance premium |
Rs. 25,000 for self, spouse, and dependent children Rs. 50,000 if above 60 years of age Parents: Rs. 25,000 and Rs. 50,000 if above 60 years of age. |
Section 80 E-education loan |
Deduction for 8 years from the year of repayment of education loan taken for self, spouse, dependent children, or a student for whom the individual is a legal guardian. |
Section 80G - donating to charity |
50% of 100% of the donated amount for notified institutions. |
Section 80C investing in tax saving instruments |
Tax benefits up to Rs. 1.5 lakh. Some investing options include:
|
Section 80DD- costs to treat disabled dependents |
If you bear the medical cost for disabled dependants, you are eligible for tax relief:
|
Home loan payments |
Principal amount: Up to Rs. 1.5 lakh u/s 80C Interest amount: Up to Rs. 2 lakh paid under section 24b |
The maturity amount of a Life Insurance Policy |
You can take a tax benefit on the maturity proceeds if the sum assured is less than:
|
Tax calculation under the new and old regimes
Tax calculation under the new and old tax regimes is done based on the income tax slabs that have been set by the Indian government for both regimes. Here are the income tax slabs for FY 24-25 based on which the tax calculation is done for both regimes:
Annual income |
Old tax regime |
New tax regime |
Up to Rs. 2.5 lakh |
NIL |
NIL |
Rs. 2.5 lakh - Rs. 5 lakh |
5% |
5% |
Rs. 5 lakh - Rs. 7.5 lakh |
20% |
10% |
Rs. 7.5 lakh - Rs. 10 lakh |
20% |
15% |
Rs. 10 lakh - Rs. 12.5 lakh |
30% |
20% |
Rs. 12.5 lakh - Rs. 15 lakh |
30% |
25% |
Above Rs. 15 lakh |
30% |
30% |
How to save tax on salary above 20 lakhs?
Here are the steps you can take to save tax on a salary above Rs. 20 lakh:
Make the most of section 80C
Section 80C is one of the best ways to save tax on your Rs. 20 lakh salary, as its full utilisation can help you lower your tax liability by Rs. 1.5 lakh. You can invest in various investment instruments such as the Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), Equity-Linked Saving Schemes (ELSS), etc. Additionally, life insurance premiums and expenses like children's tuition fees and principal repayment on home loans also qualify for this deduction.
Rent out your house property
If you own a property, you can rent it out to claim tax benefits. Although the rental income is taxable as per your applicable tax slab, you can claim the entire interest on the home loan as a deduction without any upper limit under section 24. Furthermore, you can claim a standard deduction of 30% under section 24(a) on the net annual value of the rental income for maintenance, irrespective of the actual expenditure incurred.
Use the HRA exemption
Salaried employees living in a rented house can reduce their tax liability by claiming the rent allowance. The HRA exemption is the least of the following: the actual HRA received, 50% of the salary (basic plus DA) for those living in metro cities (40% for non-metros), or the actual rent paid minus 10% of the salary (basic plus DA). Salaried employees can claim HRA under section 10(13A) with Rule 2A.
Invest in National Pension Scheme (NPS)
The National Pension Scheme is a part of section 80C deductions, where you can use the investment in NPS as part of the Rs. 1.5 lakh section 80C limit. However, you can contribute to NPS to qualify for a deduction of up to Rs. 50,000 under section 80CCD(1B), over and above the Rs. 1.5 lakh limit under section 80C. This means you can effectively reduce your taxable income by an additional Rs. 50,000.
Claim tax deductions on education loans
Under Section 80E of the Income Tax Act, you can claim a deduction on the interest paid on education loans. This deduction is available for a maximum of eight years or until the interest is fully repaid, whichever is earlier. The loan can be for higher education for yourself, your spouse, or your children, and there is no upper limit on the amount you can claim as a deduction
Make use of the LTA exemption
You can lower your tax liability by claiming Leave Travel Allowance (LTA) under section 10(5) for travel expenses incurred within India in a block of four years. The current block for claiming LTA is between 2022 and 2025. The LTA exemption covers travel costs for the employee and their family but does not include other expenses such as food and accommodation.
Use the deduction for donations
You can donate money to specified funds, charitable institutions, and relief funds and claim the donated amount as a tax deduction under section 80G. The deduction limit can be 50% or 100%, depending on the type of donation without any upper limit.
Claim tax deduction for professional development
Under section 80E, you can claim deductions for expenses incurred for professional development. You can claim the deductions for interest on loans taken for higher education, including courses that enhance professional skills. There is no upper limit on the deduction amount you can claim under section 80E.
Also read: What Is Direct Tax Code
Which regime is better for 20 lakh LPA to save tax?
Here is a side-by-side comparison of the old and the new tax regimes to understand which regime is better for Rs. 20 lakh LPA to save tax:
| Particulars | Old tax regime (in Rs.) | New tax regime (In Rs.) |
| Gross salary | Rs. 20,00,000 | Rs. 20,00,000 |
| Less: Standard deduction | Rs. 50,000 | Rs. 50,000 |
| Net salary after standard deduction | Rs. 19,50,000 | Rs. 19,50,000 |
| Deductions: | ||
| Section 80C | Rs. 1,50,000 | Not applicable |
| Section 80D | Rs. 50,000 | Not applicable |
| Section 24(b) | Rs. 2,00,000 | Not applicable |
| Section 80CCD(1B) | Rs. 50,000 | Not applicable |
| Total deductions | Rs. 5,00,000 | Rs. 50,000 |
| Net taxable income | Rs. 15,00,000 | Rs. 19,50,000 |
| Tax calculation | Old tax regime (in Rs.) | New tax regime (In Rs.) |
| Income up to Rs. 2.5 lakh | NIL | NIL |
| Income from Rs. 2.5 lakh - Rs. 5 lakh | Rs. 12,500 | Rs. 12,500 |
| Income from Rs. 5 lakh - Rs. 7.5 lakh | Rs. 50,000 | Rs. 25,000 |
| Income from Rs. 7.5 lakh - Rs. 10 lakh | Rs. 50,000 | Rs. 37,500 |
| Income from Rs. 10 lakh - Rs. 12.5 lakh | Rs. 75,000 | Rs. 50,000 |
| Income from Rs. 12.5 lakh - Rs. 15 lakh | 75,000 | 62,500 |
| Income from Rs. 15 lakh - Rs. 19.5 lakh | Rs. 1,35,000 | Rs. 1,35,000 |
| Total tax payable | Rs. 3,97,500 | Rs. 3,72,500 |
| Cess (4%) | Rs. 15,900 | Rs. 14,900 |
| Total tax liability | Rs. 4,13,400 | Rs. 3,87,400 |
Here, you can see that because of lower tax slabs in the new regime, you end up paying lower taxes even when using various deductions available under the old tax regime.
Summary
If you have a salary of Rs. 20 lakh, you fall in the highest tax bracket in India, which can force you to pay a hefty amount in taxes. However, you can use various tax-saving instruments in the old regime or the lower tax slabs of the new tax regime to ensure you avoid paying additional taxes and increase your savings. Now that you know how to save tax for a salary above Rs. 20 lakh, you can ensure you save a higher amount.
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