How to Save Tax for Salary Above 20 Lakhs?

Updated on: Feb 20th, 2026

9 min read

The most important part of tax strategy for a salary range of Rs. 20 lakhs, is to determine the most beneficial regime. The new tax regime would be beneficial when the taxpayer has limited tax saving deductions due to relaxed slab rates. On the other hand, old regime is more beneficial when you have more deductions.

In a salary level of Rs 20 lakhs, old regime is the most beneficial when you have deductions more than Rs. 7,08,330 under the old regime.

Key Deductions and Exemptions in the New Tax Regime

The following deductions and exemptions are available to a taxpayer opting for the new tax regime:

Standard deduction of Rs 75,000 under the new tax regime applicable.
Section 80CCD(2): Up to 14% of the basic pay can be claimed as a deduction on employer’s contribution to NPS account .
Section 24: Entire interest on Home Loan on the let-out property, can be claimed as a deduction, without any threshold limt.
Retirement deductions: Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)

Key Deductions and Exemptions in the Old Tax Regime

Under the old tax regime there are many components in your salary that are exempted from taxes and deductions Let’s break down some key components of salary that are exempt from taxes:

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

Take a look at them below:

Salary Components	Taxability
Basic Pay	Fully-taxable
Dearness Allowance (DA)	Fully-taxable
House Rent Allowance (HRA)	Exemption up to a certain limit.
House Rent Allowance (HRA)	Calculate now
Leave Travel Allowance (LTA)	Actual travel ticket expenses exempt for two trips in 4 years under 10(5).
Mobile/ Internet reimbursement	Exempt if: – used predominantly for office purposes – proofs/bills submitted
Children’s Education and Hostel allowance	Rs 4800 per child (max 2 children)
Food Expenses	Rs 50 per meal (max 2 meals a day)Annual=
Food Expenses	Rs 26,400 (50222 days*12 months)

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

Particulars	Limit
Standard Deduction	Flat Rs. 50,000 under the old regime.
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 – Severe or 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
The 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.

Employer’s Contribution to NPS u/s 80CCD(2)

Section 80CCD(2) allows deduction for contributions made by employers in the National Pension Scheme (NPS).
Deduction is available under both new regimes for this amount, though the limit for deduction differs according to choice of regime.
This deduction helps reduce taxable income, especially for high earners, and provides additional retirement savings through NPS.

The following table describes the quantum of deduction available under both the regimes for contributions made by the employer in the NPS scheme under section 80CCD (2)

Particulars	Central / State Government Employer	Other Employer
Old Regime	14% of salary (basic + DA)	10% of salary (basic + DA)
New Regime	14% of salary (basic + DA)	14% of salary (basic + DA)

Old and New Tax Regime Calculator

Use the below calculator to understand the tax implications under both old and new regime for your salary level.

Income Tax Calculator - FY 2025-26

Enter your annual salary

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Maximum allowed amount is ₹10,00,00,000

Note: For individuals under 60 years.

Tax Liability

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Old regime

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New regime

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Tax Calculation Example: Old vs. New Tax 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

For FY 2025-26 the tax liability of Mr. A will be calculated as follows under the old and new tax regime:

Particular	Old tax regime	New tax regime
Gross Salary u/s 17(1)	20,00,000	20,00,000
Less: Exemption u/s 10
HRA Exemption	1,00,000	NA
LTA Exemption	20,000	NA
Children's education and hostel allowance (for two children)	9,600	NA
Less: Deduction u/s 16
Standard deduction	50,000	75,000
Professional Tax	2,400	NA
Income under the Head Salary	18,18,000	19,25,000
Less : Deduction under Chapter VI-A
Section 80C	1,50,000	NA
Section 80CCD(1B)	50,000	NA
Section 80D	25,000	NA
Net Total Income	15,93,000	19,25,000
Tax Liability (Including 4% Cess)	3,02,016	1,92,400

Therefore, a taxpayer with a total income of Rs. 20 lakhs in FY 2025-26 will save Rs. 1,09,616 in taxes by opting for the new tax regime and foregoing all deductions. If he had more than Rs. 7,08,330 of tax deductions, the old regime would have been more beneficial, since the tax savings due to deductions would surpass the tax savings due to relaxed slab rates.

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.

Frequently Asked Questions

How to decide which tax regime I should opt for?

Comparative analysis of your salary and current exemption using a tax calculator will help you understand which regime is better. You can choose to claim or forgo the exemption based on which regime is beneficial to you.

Which is the best tax saving scheme applicable both for the new and old tax regime?

Employer contribution to NPS u/s 80CCD(2) is eligible for deduction both under new tax regime and old tax regime. Thus if you have decided to go with new tax regime , asking your employer to invest in NPS will help you not only to reduce the tax liability further but also create your retirement corpus.

Which tax regime is better for 20 lakhs?

This requires comparative analysis which is based on your Salary income , Exemption and deduction applicable for your. You can use our tax calculator and check which is the best option.

What is an in-hand salary for 20 LPA?

Your in hand salary for Rs 20 lakhs will depend upon the CTC , PF contribution , PT deduction , TDS deduction. You can use our in hand calculator to compute the same

Can you pay zero tax on a 20 lakhs salary?

Payment of tax depends on the exemption and deduction that you claim. However, the possibility of paying zero taxes is very remote even when you claim all deductions and exemptions, as explained above.

How to reduce tax on 20 lakhs salary?

Reduction of tax is possible using various exemptions and deductions available in Income tax.

HRA Exemption u/s 10(13A)
Standard deduction
Section 80C - PPF, LIC, ELSS etc.
Section 80D - Medical insurance premium

Allowability of such deduction depends on the tax regime that you choose. You can use our Income tax calculator to check which is the best tax regime applicable to you.

At what point can I opt for the old regime given my salary of Rs. 20 Lakhs?

If the deductions and exemption available under the old regime are over Rs.7,10,000 then opting for the old regime will be beneficial.

How do the old tax regime and the new tax regime differ from each other?

The old tax regime allows for various deductions, while the new tax regime allows few deductions and broader slab rates. You can calculate your taxable income under both regimes and decide on the one with the lesser tax liability.

What is the standard deduction applicable under the old and new tax regimes?

For the old tax regime, the standard deduction is Rs. 50,000, whereas forthe new tax regime, the standard deduction of Rs. 75,000 is applicable.

Can I switch between the old and new tax regimes every year?

Yes, non-business and non-profession taxpayers can opt for either regime each year, based on their financial situation.

How can I claim HRA under the new tax regime?

HRA exemptions are not available under the new tax regime. You can only claim deductions under the old tax regime.

About the Author

CA Mohammed S Chokhawala

Content Writer

I'm a chartered accountant, well-versed in the ins and outs of income tax, GST, and keeping the books balanced. Numbers are my thing, I can sift through financial statements and tax codes with the best of them. But there's another side to me – a side that thrives on words, not figures. Read more

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