How To Save Tax For Salary Above 20 Lakhs?

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 and those belonging to the low or middle-income group have to bear a lesser tax rate.

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 options you need to know.  

Latest Update On New Tax Regime

In the budget 2023, changes have been made to the tax slab rates, and the new tax regime has been made the default regime for FY 2023-24. However, taxpayers can opt out of the new tax regime before filling their income tax returns by submitting Form 10-IEA. 

Keeping this in mind, let us discuss the tax slab rates, deductions, and exemptions available with examples under both regimes.

Tax Saving Options Above 20 Lakhs Salary - New Tax Regime 

Tax Slabs for individuals in the new regime (Revised as per Budget 2023) are as follows;

Individuals opting for the new tax regime have limited scope of claiming exemption or deduction. The main purpose of introducing a new regime is to phase out all the deductions and exemptions available in the Income-tax Act. Compensating such limited exemptions and deductions, taxpayers are provided with a lower tax slab providing them an incentive to switch over to the new regime.

However, even in the new regime, taxpayers can still claim certain exemptions or deductions as follows

• Transport allowances in case of a specially-abled person.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Any compensation received to meet the cost of travel on tour or transfer.
• Daily allowance received to meet the ordinary regular charges or expenditures you incur on account of absence from his regular place of duty.
• Perquisites for official purposes
• Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
• Interest on Home Loan on the let-out property (Section 24)
• Deduction for employer’s contribution to NPS account [Section 80CCD(2)].
• Deduction for additional employee cost (Section 80JJAA)
• Standard deduction of Rs 50,000 under the New Tax Regime applicable from FY 2023-24
• Deduction under Section 57(iia) of family pension income
• Amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Tax Saving Options Above 20 Lakhs Salary - Old Tax Regime 

Tax Slab under the old regime are as follows;

Note:  Above slab rates are applicable for individuals aged less than 60 years. The basic exemption limit for individuals over 60 years is Rs 300,000, and for individuals aged more than 80 years is Rs 500,000.

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:

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

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

Tax Calculation Under New and Old Regime:  

Let us understand the tax calculations on salary above 20 lakh based on the example given below.

Example: Mr. A has a salary income of Rs 20 lakhs claiming deductions like HRA of Rs. 1,00,000, LTA of Rs. 20,000, Children's education allowance for two children of Rs. 9,600, Professional tax of Rs 2,400. He has also claimed deductions like 80C of Rs. 150,000, 80D - Medical insurance premium of Rs. 25,000, and NPS contribution of Rs 50,000. Which is the best tax regime to opt for in this case 

Conclusion: In the above calculation, you will observe that the new tax regime is more beneficial in spite of claiming deductions in the old regime.

Final Word

In the above calculation, you will observe that based on the investments made by the taxpayer, the tax liability differs in both regimes. Hence if you have more investments made as stated above, then it is efficient to choose the old tax regime however, if you do not have many investments made, then choosing the new tax regime would be a more efficient way to save taxes as they provide concessional tax slab rates.

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