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How to Save Tax For Salary Above 20 Lakhs?

Updated on :  

08 min read.

The Income Tax Department follows a progressive tax regime that increases the tax rate with the rise in an individual’s income. As a result, people belonging to high-income groups generally bear a higher taxation rate. While those belonging to the low or middle-income group have to bear a lesser one. 

Individuals with a high yearly income generally look for tax-saving measures to reduce their tax burdens. If you are looking for how to save tax on 20 lakhs salary, check out all the tax saving sections you need to know.  

Tax slabs under old income tax regime vs new income tax regime

As per the new income tax guidelines, you can opt for either the new or the old regime while filing your taxes. Here is a difference between the two:

Individual’s Annual IncomeOld Tax RegimeNew Tax
Regime
Up to Rs 2.5 lakhsNilNil
>2.5 lakhs – Rs 5 lakhs5% (however full rebate)5%
>5 lakhs – Rs 7.5 lakhs20% + Rs 12,50010% + Rs 12,500
>7.5 lakhs – Rs 10 lakhs20% + Rs 12,50015% + Rs 37,500
>10 lakhs – Rs 12.5 lakhs30% + Rs 1,12,50020% + Rs 75,000
>12.5 lakhs – Rs 15 lakhs30% + Rs 1,12,50025% +
Rs 1,25,000
>15 lakhs and above30% + Rs 1,12,50030% +
Rs 1,87,500

If you file your taxes according to the new regime, you cannot avail any tax benefits. Therefore, the deductions you will read about in the article are all applicable if you file your taxes according to the old regime.

To calculate your tax liability using both the regimes, you may use the old vs new tax regime calculator

How much tax will be deducted for 20 lakhs?Tax calculation example

Before you know the ways to save on taxes, it is essential for you to understand how much tax will be deducted for 20 lakhs yearly income. 

Here is an example for better understanding. 

Gross Salary20,00,000
Less:
HRA(2,00,000)
LTA(40,000)
Reimbursements(25,000)
Children education and hostel allowance(10,500)
Standard Deduction(50,000)
Professional Tax(2400)
Taxable Salary Income16,72,100
Less: Deductions
80C (Refer Note below)(1,50,000)
80D(50,000)
80E(25,000)
Net Taxable Income14,47,100
Tax on the above income2,46,630
Rebate u/s 87ANot applicable 
Total Tax2,46,630 + 4% cess

Apart from this, you can also claim these tax deductions if eligible:

Interest on home loan EMIs under Section 24b(2,00,000)
Principal amount of the home loan under section 80EEA(1,50,000)
National Pension Scheme (NPS) investments u/s 80CCD(1B)( 50,000)

It may be so, that you do not have a home loan or any investments that fall under Section 80C. Under such circumstances, you can avail these investment options to utilise the exemptions under Section 80C:

  1. Children’s Education fees: (Rs 25,000 to Rs 1 lakh)
  2. ELSS mutual funds– Rs 60,000 (Investment: Rs 500 per month SIP, Returns- 12% CAGR, Lock-in-period: 3 years)
  3. ULIP or endowment plant- Rs 12,000 premium
  4. Term plan insurance- Rs 12,000 premium (Around Rs 1 Crore cover)
  5. EPF: Around Rs 30,000 – Rs 72,000, i.e., 12% of your basic + DA (contribution already made by your employer)

In case you file your taxes as per the new regime, your tax amount will be Rs 1,74,275 + 4% cess.

Now that you have a clear idea of how to calculate income tax on a salary above 20 lakhs, let’s move on to the tax-saving measures. 

How can individuals above 20 lakh tax slab save taxes?

There are many components in your salary that are exempted from taxes. Furthermore, you are liable for several deductions if you opt for the old tax regime. Thus, your net taxable income will be as follows:

  • Salary (-) Exemptions = Taxable Salary Income
  • Taxable Salary Income (-) Deductions = Net taxable income.

Take a look at them below:

Salary ComponentsTaxability
Basic PayFully-taxable
Dearness Allowance (DA)Fully-taxable
House Rent Allowance (HRA)Exemption up to a certain limit.
Calculate now
Leave Travel Allowance (LTA)Actual travel ticket expenses exempt for 2 trips in 4 years under 10(5). Read more
Mobile/ Internet reimbursement Exempt if:
– used predominantly for office purposes –
proofs/bills submitted
Children’s Education and Hostel allowanceRs 4800 per child (max 2 children)
Food ExpensesRs 50 per meal (max 2 meals a day)Annual=
Rs 31,200 (50*2*26 days*12 months)
Standard DeductionRs 50,000 (Will be given to all without any restrictions)
Professional TaxGenerally Rs 2,400 (Varies from state to state)

Moreover, when you are tax planning for salary above 20 lakhs, you can get deductions on the following:

Paying
health
insurance
policy
premium
(Section 80D)
Self, your spouse, and your dependent children:
Rs 25,000 (Rs 50,000 if aged 60 and above)
Parents: Rs 25,000 (Rs 50,000 if aged 60 and above)
Opting for an
education
loan (Section 80E)
Interest deduction for 8 years from the year of repayment of loan taken for the higher education of yourself, your spouse, dependent children, or a student of whom you are
the legal guardian
Donating
to charity (Section 80G)
50% or 100% of the eligible amount
Investing
in tax
saving
instruments
(Section 80C)
Tax benefit of Rs.1,50,000 per year. You can invest in the
following options:
– Employees’ Provident Fund (EPF)
– Public Provident Fund (PPF)
– 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
Costs to
treat
disabled dependents (Section 80DD)
If you have disabled dependents for whom you bear
medical expenses, you are eligible for the tax relief: 
– 40% disability: Rs.75,000
– 80% disability: Rs.1,25,000
Deductions
on 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 ≤:
– 20%: policies issued before 1 April 2012
– 10%: policies issued after 1 April 2012
– 15%: policies issued after 1 April 2013 for a person with disability or disease.

These are some of the ways in which individuals who earn above Rs 20 lakhs per annum can save on income tax. However, make sure to accurately calculate your tax liability and applicable deductions. 

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