Home
Income Tax
Tax Savings
How to Save Tax For Salary Above 20 Lakhs?

How to Save Tax For Salary Above 20 Lakhs?

Updated on: 23 May, 2024 05:22 PM

Even though everyone desires a high income, a higher income comes with an increased tax liability. But, with the help of CA assistance and efficient tax planning, you can save significant taxes. You can also reduce your tax liability to zero even if your salary exceeds 20 lakhs. This article assists you in saving tax for a salary above 20 lakhs.

Budget 2023 Update: Starting with the financial year 2023-24, the new tax regime became the default tax regime for income tax filing. This means unless you specifically choose the old regime, you'll be taxed under the new system. However, you can still opt out of the new regime and switch back to the old one before filing your Income Tax Return (ITR) by submitting Form 10-IEA.

What are the Income Tax Slabs under New Regime vs. Old Regime?
Tax calculation under the Old Regime for tax on 20 lakh salary
Tax calculation under New Regime for tax on 20 lakh salary
The following deductions are available under the new regime
What are the Exemptions From Salary?
What are the Deductions Available to Save Taxes?
Frequently Asked Questions

What are the Income Tax Slabs under New Regime vs. Old Regime?

A taxpayer is required to calculate and pay taxes based on the slab rate to which he/she belongs. Given below are the currently prevailing slab rates under the new and old regimes -

Annual Income	Old Tax Regime	Annual Income	New Tax Regime
Up to 2.5 lakhs	Nil	Up to 3 lakhs	Nil
2.5 lakhs to 5 lakhs	5%	3 lakhs to 6 lakhs	5%
5 lakhs to 7.5 lakhs	20%	6 lakhs to 9 lakhs	10%
7.5 lakhs to 10 lakhs	20%	9 lakhs to 12 lakhs	15%
10 lakhs to 12.5 lakhs	30%	12 lakhs to 15 lakhs	20%
12.5 lakhs to 15 lakhs	30%	15 lakhs and above	30%
15 lakhs and above	30%

Tax calculation under the Old Regime for tax on 20 lakh salary

Gross Salary	2000000
Less:
HRA	200000
LTA	40,000
Reimbursements	24,500
Children education and hostel allowance	9,600
Standard Deduction	50,000
Professional Tax	2400
Taxable Salary Income
Less: Deductions
80C	150000
80D	50,000
80E	22,000
Net Taxable Income	1,451,500
Tax on the above income	2,47,950
Rebate u/s 87A	Not applicable
Total Tax	2,57,868
Apart from this, you can also claim these tax deductions if eligible:
Interest on home loan EMIs under Section 24b	-2,00,000
The principal amount of the home loan under section 80EEA	-1,50,000
National Pension Scheme (NPS) investments u/s 80CCD(1B)	-50,000

Tax calculation under New Regime for tax on 20 lakh salary

The following deductions are available under the new regime -

Standard Deduction - ₹50,000
Section 80CCD(2) - Employer’s contribution to NPS
Section 80CCH - Investment made in Agniveer corpus

Gross Salary	20,00,000
Less:
Standard Deduction	(50,000)
Taxable Salary Income	19,50,000
Less: Deductions
80C	N.A.
80D	N.A.
80E	N.A.
Net Taxable Income	14,47,100
Tax on the above income	2,85,000
Cess @4%	11,400
Total Tax	2,96,400

What are the Exemptions in Income Tax for 20 lakhs Salary?

There are various components of your total salary or CTC. Many components of your salary are exempt from income tax. Here’s how your salary is structured -

Annual Salary - Exemptions = Taxable Salary
Taxable Salary = Income - Deductions = Net Taxable Salary

*Please note that most exemptions and deductions are available only in the old tax regime.

Here’s the structure of CTC and the exemptions -

Salary Component	Taxability
Basic	Fully-taxable
Dearness Allowance	Fully-taxable
House Rent Allowance (HRA)	Exempt partially using the HRA calculator
Leave Travel Allowance (LTA)	Ticket expenses for up to 2 trips in 4 years are exempt under section 10(5).
Mobile/ Internet reimbursement	The exemption is given if it is used for office purposes.
Children's Education and Hostel Allowance	Rs. 4800 per child for a maximum of 2 children
Food	Rs. 50 per meal up to a maximum of 2 meals Annual = 31,200 (50226 days*12 months)
Standard Deduction	Rs 50,000, applicable to all
Professional Tax	Generally Rs 2,400 (Varies according to state)

What are the Deductions Available to Save Taxes?

Below are the various deductions available under the old tax regime -

Section 80D - health insurance premium	Exempt up to ₹25,000 for self, dependent children, and spouse. Rs 50,000 for senior citizens aged 60 years or more. Exempt up to Rs 25,000 for parents and 50,000 for people above 60 years
Section 80E - Education loan	A deduction is available on interest for 8 years from the year of repayment taken for the higher education of self, children, or spouse.
Section 80G - Donating to charity	50% or 100% of the eligible amount
Section 80C - Investing in tax-saving instruments	Tax benefit of Rs.1,50,000 per year. You can invest in the following options: Equity Linked Saving Scheme funds (ELSS) Employees’ Provident Fund (EPF) Home loan repayment and Stamp duty Public Provident Fund (PPF) National Savings Certificate (NSC) Sukanya Smriddhi Yojana (SSY) Fixed Deposit for 5 years, and more
Section 80DD - Costs to treat disabled dependents	Medical expenses of disabled dependents are deductible up to - 40% disability: Rs.75,000 80% disability: Rs.1,25,000
Home loan payments	Principal amount: Upto Rs 1.5 lakhs u/s 80C Interest amount: Upto Rs 2 lakhs paid u/s 24b
Maturity amount of a Life Insurance Policy	Maturity proceeds are tax-exempt 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.

If you are not proficient in the Income Tax Act, you may find it challenging to calculate your taxes and choose the right regime. Our tax experts can help you maximize the tax savings and e filing income tax return. So why wait for the last date to file ITR; Book eCA Today!

Frequently Asked Questions

Q- Which regime is better for tax on a 20 lakh salary?

If your income is 20 lakhs, you should opt for the old tax regime as it provides more options for exemptions and deductions that you can claim to nullify your income tax liability.

Q- Can you pay zero tax on 20 lakhs salary?

Yes, if you opt for the old tax regime, it is possible to pay zero tax on a salary of more than 20 lakhs.

Q- What additional deductions can you claim to save 100% income tax on 20 lakh income?

You can claim the following additional deductions to save 100% tax on 20 lakh income -

The principal paid for a home loan U/S 80 EEA upto 1,50,000
Contribution to NPS up to 50,000
Interest on home loan EMIs up to 2,00,000

Trending Guides New

Last few days left !! Avoid Rs.5000 Penalty.

Maximize Your Income Tax Refund

File Your Taxes with the Experts