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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.
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% |
| 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 |
| 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 |
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) |
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:
|
| Section 80DD - Costs to treat disabled dependents |
Medical expenses of disabled dependents are deductible up to -
|
| 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
|
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!
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.
Yes, if you opt for the old tax regime, it is possible to pay zero tax on a salary of more than 20 lakhs.
You can claim the following additional deductions to save 100% tax on 20 lakh income -
