How Can A Salaried Individual With Salary Between Rs 20l To Rs 25l Save Taxes In India

How Can a Salaried Individual Save Taxes in India: ₹20L to ₹25L?

High-income earners typically search for ways to cut their tax obligations. There are several tax-saving options available if you want to save taxes.

Written by : Daina Mathew

Reviewed by : Lalit Lata

Lalit Lata

2020-10-07

7939 Views

6 minutes read

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Table Of Content:

Assessing Your Tax Slab

Before getting into the specifics of tax saving on your 20L income, you must evaluate whether you will be better off filing taxes under the new tax regime or the existing tax regime.

The new tax regime was announced in Budget 2020, new tax slabs were introduced, and tax rates were much lower than in the old tax regime. For a salary ranging between ₹20 lakhs and ₹25 lakhs, the applicable tax rate under the new tax regime would be the highest, that is 30%.

Incidentally, this is the same tax slab that your salary would fall under according to the existing tax regime, that is 30%. The crucial difference between the two regimes for you would be the choice of deductions you avail.

As the new tax regime compels taxpayers to give up on various popular deductions, your choices in tax saving on 20L income will be restricted under this regime. Therefore, it might be ideal for you to file your tax under the existing tax regime and avail yourself of various available deductions.

How to Save Tax For Salary Above 20 Lakhs?

That time of the year is upon us again when we pull out all our financial records and try to determine ways of both investing and saving our hard-earned money. In particular, as the tax season looms above, it is crucial to figure out how you can lower your tax burden.

Keep in mind that even if your salary is on the higher end, ranging anywhere between ₹20 lakhs to ₹25 lakhs, you can still considerably lower your tax liability by various means. Let us take a closer look at the many provisions by the government and the Income Tax Department by which you can avail of tax savings on 20L income.

Did You Know?

In the case of "non-business cases", the option to choose the regime can be exercised every year directly in the

Source: Income Tax Department

Claim Settlement Ratio

Tax Calculation Under the Old and New Regime for Tax on 20 Lakh Salary

The choice between the old and new regime depends on the individual's specific circumstances, such as the availability of deductions and exemptions, investment patterns, and overall tax planning strategy. Here is a tabular comparison of the tax calculation under the old and new tax regimes for a salary of 20 lakhs:

ParticularsOld RegimeNew Regime

Gross Salary

20,00,000

20,00,000

Less: Deductions and Exemptions

 

 

HRA Exemption

1,00,000

-

LTA Exemption

20,000

-

Children Education Allowance

9,600

-

Standard Deduction

50,000

50,000

Professional Tax

2,400

 

Taxable Salary Income

18,18,000

19,50,000

Less: Other Deductions

 

 

Section 80C

1,50,000

-

Section 80CCD(1B)

50,000

-

Section 80D

25,000

-

Net Taxable Income

15,93,000

19,50,000

Tax on the above income

3,02,016

2,96,400

Cess @4%

12,081

11,856

Total Tax Liability

3,14,097

3,08,256

What are the Deductions Available to Save Taxes?

As a taxpayer in India, there is a wide array of tax-saving instruments and schemes you can avail to reduce your tax burden. This is because the Income Tax Department, and especially the Income Tax Act, 1961 offers taxpayers a variety of deductions. Here is a list of deductions available to save taxes:

DeductionLimit

Section 80C (EPF, PPF, ELSS, home loan repayment, etc.)

₹1,50,000

Section 80D (Health insurance premium)

₹25,000 (₹50,000 if aged 60+)

Section 80E (Interest on education loan)

No limit, deductible for 8 years

Section 80G (Donations to charity)

50% or 100% of eligible amount

Section 80DD (Disabled dependent medical expenses)

₹75,000 (40% disability), ₹1,25,000 (80%+ disability)

Section 24b (Interest on home loan)

Up to ₹2,00,000

Section 80TTA (Interest on savings account)

Up to ₹10,000

Section 80U (Disabled individual)

₹75,000 (40% disability), ₹1,25,000 (80%+ disability)

Section 80CCD(1B) (Additional NPS contribution)

Up to ₹50,000

Section 80DDB (Medical treatment expenses)

₹40,000 (₹1,00,000 for senior citizens)

Conclusion

At the end of the day, as a taxpayer with a range of salary between ₹20 lakhs and ₹25 lakhs, you have a wide assortment of tax-saving options to choose from. All that remains is to determine your financial goals and find the schemes and deductions that fit into your overall priorities.

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Glossary:

  • Tax Regime: It is the entire framework that defines how taxes are levied, calculated, reported, and paid by individuals, businesses, and other entities.
  • Professional Tax: State governments levy this tax on individuals based on their profession or trade if their income exceeds a certain threshold.
  • Cess: A cess is an additional tax or surcharge imposed by the government on the primary tax liability.
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FAQs related to Income Tax on 20 Lakhs Salary

You can opt for the old regime if the total of your allowed deductions and exemptions under the previous system is more than the breakeven point for your income level. You could benefit more from the new regime if the breakeven threshold exceeds the whole amount of your allowable deductions and exemptions.

The National Pension Scheme (NPS) contribution is the best tax-saving scheme applicable to new and old tax regimes. Under both the new and old tax regimes, you can claim a deduction of up to ₹50,000 for contributions made to the NPS under Section 80CCD(1B).

If you are wondering which tax regime is better for 20 lakhs, you should choose the old regime's tax system since it offers more opportunities for deductions and exemptions that you can use to offset your income tax obligation.

The in-hand salary for 20 LPA salary will be between ₹1,26,200 – ₹1,42,000 per month approximately.

Paying zero tax on a 20 lakh salary is possible. Still, it requires careful tax planning and taking advantage of various deductions and exemptions available under the Income Tax Act. Some key strategies include maximising deductions under Section 80C for investments in tax-saving instruments like PPF, NPS, life insurance pre

To reduce tax on a 20 lakh salary, you can take the following steps:
 

1. Opt for the old tax regime if you have eligible deductions like HRA, 80C, 80D, etc., that can lower your taxable income.

2. Maximise deductions under sections like 80C (up to ₹1.5 lakh) for investments in PPF, NPS, life insurance, etc.

3. Claim deductions for home loan interest under 

6. Lastly, ensure you submit all investment proofs to your employer before the deadline to optimise your tax savings.