How to Save Tax on a Salary of ₹20 Lakhs in India

If you’re earning ₹20 lakhs annually, saving tax smartly can leave you with more disposable income. Here’s a guide to understanding income tax calculations and strategies to reduce your tax liability under the Old Tax Regime and New Tax Regime.

Income Tax Slabs for FY 2023-24

Old Tax Regime

Income Range	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

New Tax Regime (Revised for FY 2023-24)

Income Range	Tax Rate
Up to ₹3,00,000	Nil
₹3,00,001 – ₹6,00,000	5%
₹6,00,001 – ₹9,00,000	10%
₹9,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

How Tax Works for a ₹20 Lakh Salary

Example 1: Old Tax Regime

Here’s how Mr. Rudrav, earning ₹20 lakhs annually, reduces his taxable income through exemptions and deductions.

1. Gross Salary: ₹20,00,000

2. Exemptions Claimed:

   • House Rent Allowance (HRA): ₹1,50,000

   • Leave Travel Allowance (LTA): ₹40,000

   • Reimbursements (Food, Internet): ₹24,000

   • Children’s Education Allowance: ₹9,600

   • Standard Deduction: ₹50,000

   • Professional Tax: ₹2,400

3. Total Exemptions: ₹2,76,000

4. Deductions (under Section 80C, 80D, etc.):

   • Section 80C (Investments): ₹1,50,000

   • Section 80D (Health Insurance): ₹50,000

   • Section 80E (Education Loan): ₹25,000

   • Section 80CCD (NPS): ₹50,000

   • Section 24(b) (Home Loan Interest): ₹2,00,000

5. Total Deductions: ₹4,75,000

6. Net Taxable Income: ₹20,00,000 - ₹2,76,000 (Exemptions) - ₹4,75,000 (Deductions) = ₹12,49,000

7. Tax Payable:

   • Up to ₹2,50,000: Nil

   • ₹2,50,001 – ₹5,00,000 (5%): ₹12,500

   • ₹5,00,001 – ₹10,00,000 (20%): ₹1,00,000

   • Above ₹10,00,000 (30%): ₹74,700

8. Total Tax Liability: ₹1,87,200

Example 2: New Tax Regime (FY 2023-24)

Under the revised New Tax Regime, exemptions are minimal but the tax rates are simplified.

1. Gross Salary: ₹20,00,000

2. Standard Deduction: ₹50,000

3. Net Taxable Income: ₹19,50,000

4. Tax Payable:

   • Up to ₹3,00,000: Nil

   • ₹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

5. Total Tax Liability: ₹2,85,000

Key Takeaways

• Old Regime: Beneficial if you can maximize exemptions and deductions.

• New Regime: Simpler but suited for individuals without significant exemptions or deductions.

Tax-Saving Tips

1. Invest in Section 80C Options: PPF, ELSS mutual funds, life insurance premiums, or NSC.

2. Buy Health Insurance: Claim deductions up to ₹50,000 under Section 80D.

3. National Pension Scheme (NPS): Get an additional deduction of ₹50,000 under Section 80CCD(1B).

4. Home Loan Benefits: Save up to ₹2,00,000 on interest under Section 24(b).

5. Education Loan: Interest payments are deductible under Section 80E.

Frequently Asked Questions

1. How can I pay zero tax on a ₹20 lakh salary? Leveraging the old tax regime, claiming all exemptions, and investing in tax-saving instruments under Section 80C, 80D, and others.

2. Which regime is better for me? Choose the old regime if you have significant investments and eligible deductions. Opt for the new regime if you want simplicity and don’t claim many exemptions.

3. How much tax is exempt under the new regime? In the revised new regime, up to ₹3,00,000 is tax-free, and a standard deduction of ₹50,000 applies.