Which Tax Regime is Better for 20 Lakhs

To calculate tax on a Rs 20 lakh salary under the new tax regime, slab-wise rates apply: no tax on the first Rs 4 lakh, 5% on the next Rs 4 lakh (Rs 20,000), 10% on the next Rs 4 lakh (Rs 40,000), 15% on the next Rs 4 lakh (Rs 60,000), and 20% on the next Rs 3.25 lakh (Rs 65,000). This totals Rs 1,85,000. Adding 4% health and education cess (Rs 7,400), the total tax liability comes to Rs 1,92,400.
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Tax on Rs. 20 lakh Salary in India Under New Regime
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3 min
17-April-2025

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.

Impact of budget 2025 on income tax slabs: What’s changing?  

The Union Budget 2025 introduced notable changes to the income tax slabs under the new tax regime, providing significant relief and additional disposable income for individual taxpayers.

Key changes in income tax slabs:

  • Higher basic exemption limit: The basic exemption limit has increased from Rs. 3 lakh to Rs. 4 lakh, ensuring no tax liability for income earners within this range.
  • Enhanced Section 87A rebate: Taxpayers earning up to Rs. 12 lakh annually can now claim a higher rebate of up to Rs. 60,000 under Section 87A, effectively removing tax liability for income up to Rs. 12 lakh.
  • Introduction of standard deduction: Salaried taxpayers benefit from a new standard deduction of Rs. 75,000, making annual income up to Rs. 12.75 lakh completely tax-free.
  • Revised tax slabs:
    •  Income up to Rs. 4 lakh: No tax
    • Rs. 4 lakh – Rs. 8 lakh: 5%
    • Rs. 8 lakh – Rs. 12 lakh: 10%
    • o Rs. 12 lakh – Rs. 16 lakh: 15%
    • o Rs. 16 lakh – Rs. 20 lakh: 20%
    • o Rs. 20 lakh – Rs. 24 lakh: 25%
    • Above Rs. 24 lakh: 30%

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The slab rates for new tax regime applicable for FY 2025-2026

The slab rates for new tax regime applicable for FY 2025–26​

The Union Budget 2025 introduced significant changes to the income tax structure under the new tax regime, aiming to provide substantial relief to middle-income earners and simplify the tax system. These changes are effective from April 1, 2025, for the financial year 2025–26.​

Revised Income Tax Slabs (FY 2025–26)

Annual income (Rs.)

Tax rate (%)

Up to Rs. 4,00,000

0%

Rs. 4,00,001 – Rs. 8,00,000

5%

Rs. 8,00,001 – Rs. 12,00,000

10%

Rs. 12,00,001 – Rs. 16,00,000

15%

Rs. 16,00,001 – Rs. 20,00,000

20%

Rs. 20,00,001 – Rs. 24,00,000

25%

Above Rs. 24,00,000

30%

With the increased basic exemption limit to Rs. 4 lakh and the enhanced rebate under Section 87A up to Rs. 60,000, individuals earning up to Rs. 12 lakh annually will have no tax liability under the new regime. Additionally, the introduction of a standard deduction of Rs. 75,000 for salaried individuals effectively makes income up to Rs. 12.75 lakh tax-free. These reforms are designed to boost disposable income, encourage savings, and stimulate economic growth.

How to choose between new and old tax regime

With the introduction of revised income tax slabs in Budget 2025, selecting the appropriate tax regime has become crucial. The decision hinges on your income level, eligible deductions, and financial objectives.​

A. When to Opt for the New Tax Regime:

  • Income up to Rs. 12 lakh: The new regime offers a full tax rebate under Section 87A, resulting in zero tax liability for individuals earning up to Rs. 12 lakh. 
  • Limited Deductions: If you do not claim substantial deductions like HRA, home loan interest, or investments under Section 80C, the new regime's lower tax rates can be more beneficil.​
  • Simplified Compliance: The new regime eliminates the need to track multiple exemptions and deductions, simplifying the tax filing process.​

B. When to Stick with the Old Tax Regime:

  • Substantial Deductions: If you claim significant deductions (e.g., Rs. 5.25 lakh or more), the old regime may offer lower tax liabilit. ​
  • Customized Salary Structures: Individuals with salary components like HRA, LTA, and other allowances that are tax-exempt under the old regime may find it more advantageous.

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.

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:

  • Public Provident Fund (PPF)
  • Employees’ Provident Fund (EPF)
  • Equity Linked Saving Scheme funds (ELSS)
  • Home loan repayment and Stamp duty
  • Sukanya Smriddhi Yojana (SSY)
  • National Savings Certificate (NSC)
  • Fixed Deposit for 5 years and more

Section 80DD- costs to treat disabled dependents

If you bear the medical cost for disabled dependants, you are eligible for tax relief:

  • 40% disability: Rs. 75,000
  • 80% or severe disability: Rs. 1.25 lakh.

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:

  • 20% for policies issued before 1 April 2012
  • 10% for policies issued after 1 April 2012
  • 15% for policies issued after 1 April 2013 for a person with a disability.

 

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.

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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Frequently asked questions

How much tax will be deducted for 20 lakhs salary?
The tax deducted from an Rs. 20 lakh salary depends on your chosen tax regime and the exemptions you claim. You can use various income tax calculators to calculate your tax liability based on the tax regime and claimed exemptions.
Which tax regime is better for 20 lakhs?
The new tax regime is considered better for Rs. 20 lakh salary as it has lower tax slabs, allowing you to pay a lower tax amount when compared to the old tax regime. However, it is wise to use an income tax calculator to determine which tax regime is better for you to pay a lower tax amount.
How to save tax on 20 LPA?
You can reduce your taxable income by utilising various exemptions and deductions available in the old tax regime under section 80C and others. On the other hand, you can opt for the new tax regime to utilise the lower tax slabs.
What tax slab applies to a salary above 20 lakhs?
Above a salary of Rs. 20 lakh, a 30% tax slab is applicable.
How can I reduce my taxable income if I earn above 20 lakhs?
You can utilise various exemptions and deductions available under the old tax regime or choose the new tax regime’s lower tax slabs to reduce your tax liability if you earn above Rs. 20 lakh.
Are there any tax benefits specific to high-income earners?
Although not specific to high-earners, they can use various additional tax deductions such as Rs. 50,000 NPS deduction over and above the Rs. 1.5 lakh deduction under section 80CCD(1B).
Can a home loan help save on taxes for someone earning more than 20 lakhs?
Yes, a home loan can help save taxes for someone earning more than Rs. 20 lakh by providing deductions under section 24(b) for the interest paid on loans up to Rs. 2 lakhs per year and under section 80C for the principal repayment up to Rs. 1.5 lakh per year.
Are there any tax-saving tips exclusively for senior executives who have salaries above 20 lakhs?

Senior citizens with salaries above Rs. 20 lakh can consider tax-saving options such as deductions under section 80C, utilising perks like HRA and LTA efficiently, and considering tax-saving investment avenues like NPS Tier-1 contributions.

Which is the best tax-saving investment for an income earner above 20 lakhs and in the 30% tax slab?

For individuals earning above Rs. 20 lakh and falling in the 30% tax slab, Equity Linked Savings Schemes (ELSS) is considered as the best tax-saving investment. ELSS investments qualify for a tax deduction of up to Rs. 1.5 lakh under section 80C.

Is 20 lakh a good salary in India?

Yes, a salary of 20 lakh per annum is considered quite good in India. It provides a comfortable standard of living, allowing for savings, investments, and a decent lifestyle, especially in cities with a moderate cost of living. However, the perception of its adequacy can vary based on personal circumstances and location.

How much tax will be deducted for 20 lakh salary?

For a 20 lakh annual salary in India, the income tax liability depends on various factors like deductions and exemptions. Typically, without considering exemptions, the tax would be approximately Rs. 3.37 lakh under the old regime and around Rs. 2.60 lakh under the new regime for the financial year 2023-24.

How many Indians earn 20 lakhs per year?

Earning an annual salary of 20 lakh places an individual among the higher income earners in India. Approximately 2-3% of the Indian population earns this much or more, highlighting the disparity in income distribution within the country.

What is the top 1% salary in India?

The top 1% of earners in India typically have salaries exceeding Rs. 50 lakh per annum. This threshold reflects the significant income inequality present in the country, where a small fraction of the population controls a large portion of the total income.

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