How to Save Tax for Salary Above 20 Lakhs (2024)

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
  

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.