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How to save tax for a salary above Rs. 20 lakhs?

How to save tax for a salary above Rs. 20 lakhs?

The ever-shifting nature of India’s tax regime can make it challenging to keep up with all the changes and make tax filing an overwhelming and confusing task. It can make it harder to keep track of all the ways in which you can maximize your tax savings.

If you earn an annual salary above Rs. 20 lakhs, careful analysis of the old and new tax regimes and smart tax planning will help you cut down on payable tax and save money.

This article will explore how to save tax for a salary above Rs. 20 lakhs so that you can get the most out of your hard-earned income.

Income tax slabs for a Rs. 20 lakhs salary as per the Budget 2025

The new tax regime introduced in the 2025-26 Union Budget has brought some key changes to income tax rates and deductions.

Specifically, it has lowered the income tax rates for the Rs. 20 lakhs salary bracket, bringing much-needed financial relief to citizens in this tax bracket.

The following table illustrates the updated income tax rates for the fiscal year 2025-26 according to the new tax regime:

Total income in rupeesRate of tax
Up to 4 lakhs0%
4 to 8 lakhs5%
8 to 12 lakhs10%
12 to 16 lakhs15%
16 to 20 lakhs20%
20 to 24 lakhs25%
Over 24 lakhs30%

Tax regime comparison: Which is better for a Rs. 20 lakhs salary?

While the new tax regime offers lower tax rates, you can still opt for the old tax regime if the deductions and exemptions claimed under it help you save more tax on a Rs. 20 lakhs salary.

Here is a comparison of the tax rates according to the old vs new tax regimes:

Total income in rupeesTax rate in the old regimeTax rate in the new regime (2025)
Up to Rs. 2.5 lakhs0%0%
Rs. 2.5 lakhs – Rs. 4 lakhs5%0%
Rs. 4 lakhs – Rs. 8 lakhs5%5%
Rs. 8 lakhs – Rs. 12 lakhs20%10%
Rs. 12 lakhs – Rs. 16 lakhs30%15%
Rs. 16 lakhs – Rs. 20 lakhs30%20%
Rs. 20 lakhs – Rs. 24 lakhs30%25%
Over Rs. 24 lakhs30%30%

Tax-saving options for a salary above Rs. 20 lakhs

If you have an annual income of Rs. 20 lakhs or more, you can use the following tips to maximize your tax savings:

  1. Utilize tax deductions under Section 80C to their fullest extent. Section 80C allows deductions up to Rs. 1.5 lakhs for taxpayers who have certain tax-saving investments and expenses, such as National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), and Employee Provident Fund (EPF).
  2. Invest in health insurance policies to avail tax deductions under Section 80D. Section 80D can reduce your tax liability by up to Rs. 25,000. For senior citizens (people aged 60 or above), this amount has been increased to Rs. 50,000.
  3. If you live on rent exceeding 10% of your basic salary, you can avail of the House Rent Allowance (HRA) tax exemption.
  4. Under Section 24, you can avail of a tax deduction of up to Rs. 2 lakhs on the interest paid on a home loan on any rental income.
  5. Under Section 80CCD(1B), you can qualify for tax deductions of up to Rs. 1.5 lakhs by investing in the National Pension Scheme.
  6. Under Section 80C, you can claim tax deductions on any expenses towards your professional development, including courses and training programs you’ve taken in your line of work.
  7. Section 80E allows you to claim deductions of up to Rs. 1.5 lakhs on education loans that you take out for yourself or your dependents for a maximum period of eight years.
  8. Your employer may provide you with a Leave Travel Allowance (LTA) for travel expenses incurred while you are on leave. Tax exemptions on LTA can be claimed twice in four financial years.
  9. Under Section 80G, you can claim a tax deduction on donations to registered charitable organizations, including religious and political organizations.

How to calculate tax liability for a Rs. 20 lakhs salary: Step-by-step example

Individuals earning an annual salary of Rs. 20 lakhs often feel intimidated while calculating tax liability. The following step-by-step example explains the calculation of income tax for a Rs. 20 lakhs per annum salary in an easy manner.

Step 1: Consider your gross salary

For this example, your gross salary before any deductions or taxes is Rs. 20 lakhs.

Step 2: Subtract standard deduction

If you’re opting for the old regime, subtract Rs. 50,000 as standard deduction, making the income Rs. 19,50,000. The new regime allows a standard deduction of Rs. 75,000, helping you reduce the income to Rs. 19,25,000.

Step 3: Choose the tax regime

Determine which tax regime you’d like to choose – new or old. Under the old regime, you can enjoy the benefits of additional deductions to reduce the total taxable income. The new regime, on the other hand, has lower tax rates with fewer benefits.

Step 4: Claim deductions (old regime)

Based on your investments, you can reduce your income by up to Rs. 1.5 lakhs under Section 80C, Rs. 50,000 under NPS, and Rs. 25,000 for health insurance.

Step 5: Calculate your taxable income

To arrive at the taxable income, you need to subtract the deductions from your gross salary. For the old regime, taxable income will be Rs. 17,25,000 (19,50,000 – 1,50,000 – 50,000 – 25,000). For the new regime, taxable income will be Rs. 19,25,000.

Step 6: Apply income tax slabs

As shown in the tables above, the slab rates vary under the old and new regimes. Calculate income tax by applying the relevant tax rates to each income portion. Under the old regime, taxes will amount to Rs. 3,30,000. Under the new regime, total taxes will be Rs. 2,67,500.

Step 7: Add cess

Add 4% health and education cess to the calculated tax. The tax amounts under the old and new regimes will now be Rs. 3,43,200 and Rs. 2,78,200, respectively.

Choosing the best tax regime for salaried employees earning above Rs. 20 lakhs

Choosing the best tax regime for salaried employees earning above Rs. 20 lakhs depends on income structure and tax-saving habits. Employees can choose between the old tax regime and the new tax regime.

You must choose the old tax regime if you have invested in tax-saving instruments and can claim deductions. The tax-saving options for salaried individuals include Section 80C investments, health insurance, NPS, and HRA.

The new tax regime is suitable for you if you don’t have substantial deductions to claim. It has lower tax rates and a simplified tax filing process.

Salaried employees earning above Rs. 20 lakhs should calculate tax under both regimes before choosing. If deductions and exemptions are high, the old regime usually saves more tax. If deductions are low, the new regime may be better and easier to manage.

Conclusion

Careful tax planning and complete analysis of your salary according to the old vs. new tax regime can help you determine how to save tax on salary income of Rs. 20 lakhs.

Learn how to plan your taxes the smart way with Tata Capital’s handy guide on Rs. 20 lakhs income tax, and invest your extra savings in Tata Capital’s flexible personal loans at attractive interest rates.

Tata Capital’s convenient home loan with minimal documentation and a digital application process will set you on the path to homeownership today.

To learn more, check the Tata Capital website or download the app.

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FAQs

Which tax regime is better for 20 lakhs?

The tax regime that is better for 20 lakhs will depend on the exemptions and deductions you are eligible for. You will need to thoroughly analyse your income status and investments to find the best fit for you. The new tax regime may benefit you more as it has lower tax slabs for 20 lakh salary.

How to reduce tax on 20 lakhs salary?

Careful tax planning can help you determine how to save tax for salary 20 lakhs and reduce tax liabilities. You can reduce tax on 20 lakhs salary by availing various deductions and exemptions you are eligible for, including standard deduction, deductions under Section 80C (PPF, ELSS, LIC, etc.), deductions under Section 80D (medical insurance premium), and HRA exemption u/s 10(13A).

What tax slab applies to a salary above 20 lakhs?

A 30% tax slab is applicable on a salary above 20 lakhs under the old tax regime. Under the new regime, a tax slab of 25% applies on salary of 20 lakhs to 24 lakhs, while 30% income tax is applicable on salary over 24 lakhs.

Can you pay zero tax on a 20 lakhs salary?

It is rare to pay zero tax on a 20 lakhs salary. However, smart use of all the tax deductions and exemptions you qualify for can help you maximise tax savings and cut down on tax liabilities as much as possible.

What is the income tax for a Rs. 20 lakhs per annum salary in India?

Income tax on a Rs. 20 lakhs salary depends on the regime you choose - new or old. Under the new regime, tax is roughly Rs. 2 lakhs to Rs. 3 lakhs after standard deduction. Under the old regime, taxes vary based on deductions claimed.

What are the best tax-saving options for a salaried income of above Rs. 20 lakhs?

The best tax-saving options for salaried individuals earning above Rs. 20 lakhs include Section 80C investments, NPS contributions, health insurance under Section 80D, home loan interest exemption, HRA benefits, and tax-free allowances. These help reduce taxable income under the old tax regime.

How to save tax for a salary of above Rs. 20 lakhs under the old and new regimes?

Under the old regime, you can save tax using deductions under Sections 80C and 80D, HRA, and NPS. The new regime has lower rates with fewer deductions. The chances for savings are limited, but the filing is simpler.

Can I pay zero income tax on a Rs. 20 lakhs yearly salary?

No, it is not possible to pay zero income tax on a 20 lakhs salary. Even after maximum deductions under the old regime, some taxable income remains. So, there will always be a minimum amount of payable tax.

How do HRA, LTA, and NPS impact taxable income for a Rs. 20 lakhs CTC?

HRA reduces tax if you live in a rented house. LTA saves taxes on travel expenses. If you and your employer contribute to NPS, it can be claimed as a deduction to further reduce taxable income. Together, they can significantly reduce taxes under the old regime for 20 lakhs CTC.

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