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How to Save Tax* For Salary Above 20 Lakhs?

From investing in tax-saving instruments like EPF and NSC to utilising health insurance plans, there are various ways in which you can save tax* on 20 lakhs salary. Read on to learn more.

Taxes are an integral part of the economy that works towards the development and welfare of the society. But we can not ignore the fact that higher tax rates can sometimes impose a financial burden on the taxpayers, especially the high-salaried individuals. 
 

In fact, optimising tax savings while adhering to income tax laws is no less than mastering a complex art. If you earn above or around ₹20 lakhs in India, then proper tax planning and management can make a huge difference in your financial health. 
 

The good news is, there are some legit ways to reduce your tax burden while complying with the tax laws. 
 

In this blog, we will walk you through all those effective tax-saving ways and help you in better tax planning for a 20 lakhs salary. Read on!

What is the Income Tax Calculation for 20 Lakhs Per Annum?

Calculating income tax for 20 lakhs salary involves the following steps:
 

  • Step-1: Determine Taxable Income

The first step is to calculate your taxable income. To do this, subtract all the rebates, deductions and exemptions from your gross income. 
 

  • Step-2: Apply Income Tax Slab

The next step is to apply a tax slab according to the new or old tax regime, depending on your deductions and financial situation. As you can see in the table, the old tax regime has higher tax rates than the new one. 
 

However, the new regime does not allow a majority of deductions, making it beneficial to individuals with fewer deductions. So, if you have multiple deductions, then the old tax regime will be a better option, else, go with the new regime. Note that if you earn more than ₹15 lakhs per year, then you fall in the 30% tax bracket. 
 

  • Step-3: Determine Tax Liability 

Calculate you tax liability by applying the given tax rate. For individuals earning ₹20 lakhs per year, the tax on 20 lakhs income will be 30% of their taxable income. 
 

Here is the simple formula for income tax calculation for 20 lakhs per annum:
 

  • Gross Salary - Exemptions = Taxable Income

  • Taxable Income - Deductions = Net Taxable Income
     

Annual Income 

New Tax Regime (FY 2023-24)

Old Tax Regime (FY 2022-23)

Up to ₹2.5 lakhs

No Tax

No Tax

> ₹2.5 lakhs – ₹5 lakhs

5%

5% (Rebate)

> ₹5 lakhs – ₹7.5 lakhs

10% + ₹12,500

20% + ₹12,500

> ₹7.5 lakhs – ₹10 lakhs

15% + ₹37,500

20% + ₹12,500

> ₹10 lakhs – ₹12.5 lakhs

20% + ₹75,000

30% + ₹1,12,500

> ₹12.5 lakhs – ₹15 lakhs

25% + ₹1,25,000

30% + ₹1,12,500

> ₹15 lakhs and above

30% + ₹1,87,500

30% + ₹1,12,500

How to Save Income Tax on 20 Lakhs Salary?

 

 

With proper tax planning for 20 lakhs salary, you can increase your tax savings and optimise your income. Following are some ways you can do so:
 

  • Invest in Tax Saving Instruments (Section 80C)

    Section 80C is one of the most popular ways to save tax and enjoy decent returns on your investments. You can avail tax benefits of up to ₹1,50,000 per year by investing in the following options:
     

    • Life Insurance Policies

    • Public Provident Fund (PPF)

    • Employee Provident Fund (EPF)

    • Home Loan Repayment and Stamp Duty

    • Equity Linked Saving Scheme Funds (ELSS)

    • National Savings Certificate (NSC)

    • Sukanya Samriddhi Yojana (SSY)

    • 5 years Fixed Deposit
       

  • Purchase Health Insurance Policy

    Health insurance offers financial safety against unforeseen events. Besides this safety net, a health insurance policy can also help you get great tax deductions as well. As per Section 80D, you can claim up to ₹25,000 on health insurance premiums in the name of yourself, your spouse, and your children.
     

    For an insured aged above 60, you can claim up to ₹50,000. 
     

    Further, if you have health insurance plans for your parents or dependent senior citizens, you can additionally claim up to ₹25,000 (₹50,000 for those above age 60). 
     

  • Opt for Education Loans

    A good way to save income tax on 20 lakhs salary is to get an education loan. Under Section 80E of the Income Tax Act, you can claim an interest deduction of up to 8 years from the repayment date of the loan taken for yourself, your children, your spouse, or any dependent of whom you are the legal guardian. 
     

  • Claim Deductions on Home Loan

    Under Section 80C, you can claim up to ₹1,50,000 on the principal amount of your home loan. Further, you can claim up to ₹2,00,000 on interest under Section 24b. It can be a substantial tax-saving option for high-salaried individuals. 
     

  • Medical Expenses to Treat Disabled

    If you are bearing the medical expenses of your legal dependent disabled, then you can get the following deductions under Section 80DD:
     

    • Up to ₹75,000 for 40% disability 

    • Up to ₹1,25,000 for 80% disability 
       

  • Donate to Charity

    Section 80G allows 50% to 100% tax deductions for charity donations. It means that you can save nearly the full tax amount by making eligible donations to charitable trusts and organisations.

Final Thoughts

Understanding how to optimise savings on tax for 20 lakhs salary will help you in effective tax planning and financial management. All the tax-saving tips mentioned above have proven very effective for high-income individuals. These will help you reduce your tax liabilities and ensure you stay on the right side of the law.
 

Besides, consider your deductions and net taxable income if you are confused about choosing between the old and new tax regimes. If your deductions are fewer, then opt for the new tax regime; otherwise, stick to the old regime. With this, we have covered everything you need to know about saving income tax on 20 lakhs salary. 
 

However, it is advisable to consult a tax professional or expert to understand the exact scope of tax saving options available to you according to the prevailing tax norms.

Want to Keep More of Your Hard-Earned Money? Speak to out expert

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Which tax regime is better for 20 lakhs?

The best tax regime can only be determined after considering your net taxable income and type of deductions. Since the new tax regime has lower tax rates but minimum deductions, it is beneficial for those who do not have a lot of deductions in their salary structure. 

On the other hand, the old tax regime is great for those with higher deductions.

Which Insurance Plan is good for tax saving?

You can purchase health insurance policies for yourself and your family and get up to ₹25,000 in tax deductions.

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.