An individual earning a salary above Rs. 20 lacs per annum must know the practical and legal ways of saving income tax for 20 lakhs in India. There are various tax-saving options for high-salaried people to reduce the tax burden. The Government has introduced many provisions to help salaried people legally save income tax on 20 lakhs salary.
Indian income tax department works on the progressive tax regime where the high tax rates are applicable on higher salaries. So, the individuals falling under the high-income category have to pay higher tax rates. Similarly, the people belonging to the lower salary group need to pay a lower tax rate.
Salaried individuals from higher-income groups always search for safer options to save income tax on 20 lakhs salary. Here, we will discuss how to save tax for a salary above 20 lakhs and Zero Tax on Salary Income INR 20 Lakhs.
Also read: How To Save Tax For Salary Above 50 Lakhs
Effective Ways How to Save Tax for Salary above 20 lakhs?
The government of India has introduced various ways how to save tax for salaries above 20 lakhs to help high-salaried individuals save tax legally. If you adopt these methods, you will avoid paying a high-income tax of 20 lakh rupees. Let’s discuss them in detail:
1. Mutual funds for saving tax
People in high-salary groups prefer investing in tax-saving mutual funds as an effective way how to save tax for a salary above 20 Lakhs. The tax saving mutual fund is called the Equity linked saving scheme (ELSS), providing tax benefits according to Section 80C of the Income Tax Act. ELSS investment can allow you to claim tax deductions of up to Rs. 1.5 lakhs.
There is a locking period of 3 years in ELSS which means you are not allowed to withdraw the amount before 3 years.
2. Public provident fund (PPF)
PPF is also one of the best ways how to save tax for a salary above 20 lakhs, according to Section 80C. The long-term investment allows you to claim a tax deduction of up to Rs. 1.5 lakhs. The government revises the interest rates on PPF every quarterly.
3. National Pension Scheme (NPS)
The Government of India introduces NPS as a retirement saving scheme. It is also one of the most effective and legal ways how to save tax for salary above 20 lakhs under Section 80CCD. NPS allows you to claim up to 2 lakhs of tax deduction. Also, it enables you to claim tax deductions up to Rs. 50,000 under section 80CCD (1B).
There are two options in NPS:
Tier 1: It is a long-term investment scheme with 15 year lock-in period
Tier 2: It is a flexible investment plan with no lock-in period.
4. Health Insurance
Health insurance offers you financial help during any medical emergency and offers income tax on 20 lakhs salary benefits under section 80D of the Income Tax Act. It allows you to claim tax deductions up to Rs. 25000 for premium payments for yourself, your spouse, and your children. Apart from this, you get the chance to claim an additional tax deduction of Rs. 25000 for your parents’ premiums. If the parents are senior citizens, the tax deduction will increase to Rs. 50,000.
5. Donations
You can donate to a charity to save tax for 20 lakhs in India under section 80G. This noble cause allows you to claim a tax deduction of 50% of your donation. While donating the funds, please ensure that the organization is registered with the Government and possesses a valid 80G certificate.
6. Home loan
A home loan is also an effective way how to save tax for a salary above 20 lakhs which allows you to claim tax benefits on the principal amount and interest under Section 80C and 24, respectively. The claim of tax deduction of Rs. 1.5 lakhs is allowed on the principal amount and Rs. 2 lakhs on interest.
7. Rent
If you pay rent for your house, it allows you to claim benefits for tax for 20 lakhs in India under section 80GG. In case, your company is not paying you HRA (House rent allowance), you can claim up to Rs. 60,000 per annum tax benefits.
8. Education loan
The education loan to fund your or your dependent’s education can help you how to save tax for a salary above 20 lakhs under section 80E. You can claim the tax deduction on the interest amount for a maximum of 8 years. The tax deduction has no limit.
9. Income earned from investment
The income that you are earning from investments helps you to claim tax benefits. Let’s understand this with an example, suppose you possess a rental house; you can claim tax on the loan you took to buy that property and property tax paid by you along with maintenance charges.
10. New tax regime
In 2020, the Government of India introduced a new tax regime offering lower tax rates. It doesn’t provide income tax on 20 lakhs salary benefits under income tax sections.
Under the new tax regime, you can pay low tax rates for income tax of 20 lakh rupees but are not allowed to claim tax benefits. So, it is recommended to do proper calculations before opting for the New tax regime.
How to Pay Zero Income Tax on 20 Lakh Salary?
If you are looking for a way how to Zero Tax on Salary Income INR 20 Lakhs, let us understand this with an example.
Suppose Mr. Amit earns a gross income of Rs. 20 lakhs annually. Below are the tables depicting Mr. Amit’s tax liability under the old and new tax regimes.
1. Old Tax Regime
| Gross annual salary | Rs. 20 Lakhs |
| Less (Exemptions) | |
| HRA | 1,50,000 |
| LTA | 40,000 |
| Reimbursement for food, mobile, etc. | 24000 |
| Children’s education and Hostel allowance | 9600 |
| Standard Deduction | 50,000 |
| Professional Tax | 2400 |
| Total Exemptions (B) | 2,76000 |
| Less (Deductions) | |
| 80C | 1,50,000 |
| 80D | 50,000 |
| 80E | 25,000 |
| 80CCD (1B) | 50,000 |
| Section 24b | 20,000 |
| Total Deductions (C) | 4,75,000 |
| Net Taxable Income (A-B-C) | 12,49,000 |
| Upto Rs. 2,50,000 (Nil) | Rs 0 |
| Rs. 2,50,001-5,00,000 (5%) | 12,500 |
| Rs. 5,00,001 – 10,00,000 (20%) | 100,000 |
| Above 10,00,000 (30%) | 74,700 |
| Total tax Payable | 1,87,200 |
2. New tax Regime FY 23-24
| Gross annual income (A) | Rs. 20 Lakhs |
| Less (Exemptions) | |
| Standard deductions | 50,000 |
| Total Exemptions (B) | 50,000 |
| Total Deductions (C) | Rs. 0 |
| Net taxable income (A-B-C) | Rs. 19,50,000 |
| Upto Rs. 3,00,000 (Nil) | 0 |
| 3,00,001 – 6,00,000 (5%) | 15,000 |
| 6,00,001 – 9,00,000 (10%) | 30,000 |
| 9,00,001 – 12,00,000 (15%) | 45,000 |
| 12,00,001 – 15,00,000 (20%) | 60,000 |
| Above 15,00,000 (30%) | 1,35,000 |
| Total Tax payable | Rs. 2,85,000 |
The above data shows Mr. Amit is liable to pay Rs. 1,87,200 as tax under the old regime. According to the new tax regime, he needs to pay Rs. 2,85,000 as tax in FY 23-24
How can you save tax if you fall under the above 20 lakhs tax slab?
Various components in the salary are tax-exempt. Also, you are liable for many deductions under the old tax regime if you choose it. Hence, your net taxable income is:
- Salary – exemptions = Taxable salary
- Taxable salary income – Deductions = Net taxable income
Salary components and their taxability:
| Salary components | Taxable |
| Basic Salary | Full Taxable |
| DA | Fully-taxable |
| HRA | Exempted to a limit |
| LTA | 2 travels in 4 years are exempted under 10(5) for domestic flight tickets. |
| Mobile / Internet reimbursement | Exempted in case:
Used for office use. Need to give proofs |
| Children’s education and hostel allowance | 4800 each for 2 children |
| Food expenses | Rs 50 for each meal (2 meals a day) |
| Standard Deduction | Rs. 50,000 |
| Professional tax | Rs. 2400 (Varies according to state policy) |
Conclusion
You can use various ways how to save tax for a salary above 20 lakhs, such as ELSS, PPF, NPS, health insurance, loans, etc. Also, make sure to perform proper calculations before choosing the tax regime.
How To Save Tax For Salary Above 20 Lakhs – FAQs
How to pay Zero Tax on Salary Income INR 20 Lakhs?
To know how to pay Zero Tax on Salary Income INR 20 Lakhs, you must claim tax deductions and invest in tax saving schemes. You must consider taking the minimum benefits of available deductions and exemptions.
Is it possible to save 100% tax?
You can save 100% on income tax on 20 lakhs salary with proper tax planning. You must invest in tax saving schemes and claim exemptions. It’s better to hire a financial advisor to help you with the process.
According to the Income Tax Act, what amount of income is tax-free?
Regarding the old tax regime, Rs. 2,50,000 is tax-free. However, it has increased to Rs. 3,00,000 from the year 2023.
Please explain the saving tax for 20 lakhs in India using a home loan.
You can claim tax deductions up to Rs. 1.5 lakhs on Principle amount under section 80C while Rs. 2 Lakhs on interest paid under section 24b. home loan Is a legal and best way to save tax for 20 lakhs in India.
What is the tax saving scheme to save income tax on 20 lakh rupees?
The instruments for saving income tax on 20 lakh rupees that offer tax benefits of Rs. 1,50,000 per annum are Employee provident fund, Public provident fund, Equity Linked saving scheme funds, Home loan, Sukanya Samriddhi Yojana, National saving certificate, Fixed deposit for five years.
Leave a Reply