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  7. 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.

Contents

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 (50*2*26 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
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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.