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Published on:
March 21, 2023
By
Harshini

How to Save Tax For Salary Above 20 Lakhs?

If you have a salary above 20 lakhs, there are several tax-saving strategies that you can consider to reduce your tax liability:

1. Invest in tax-saving instruments: You can invest in tax-saving instruments such as Equity-Linked Saving Schemes (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and life insurance policies to save tax. These investments are eligible for tax deductions under Section 80C of the Income Tax Act.

2. House Rent Allowance (HRA): If you are paying rent for your accommodation, you can claim a tax deduction for HRA. The amount of deduction depends on the amount of HRA received, the actual rent paid, and the location of the house.

3. Medical reimbursement: If your employer provides medical reimbursement, you can claim a tax deduction of up to Rs. 15,000 per financial year.

4. Education loans: Interest paid on education loans is eligible for tax deductions under Section 80E of the Income Tax Act.

5. Charitable donations: Donations made to eligible charitable organizations are eligible for tax deductions under Section 80G of the Income Tax Act.

6. Maintenance of disabled dependent: If you are maintaining a disabled dependent, you can claim a tax deduction of up to Rs. 75,000 per financial year under Section 80DD of the Income Tax Act.

7. Principal repayment of home loan: Repayment of the principal amount of a home loan is eligible for tax deductions under Section 80C of the Income Tax Act.

It is important to note that tax laws and regulations are subject to change and you should always consult a tax expert or financial advisor for personalized advice.

Tax slabs under old income tax regime vs new income tax regime

The tax slabs for both the old and the new income tax regimes are different. The old income tax regime, also known as the traditional tax regime, has higher tax rates compared to the new income tax regime, also known as the new tax regime.

Old Income Tax Regime (Traditional Tax Regime)

1. Up to Rs. 2.5 lakhs: No tax

2. Rs. 2.5 lakhs to Rs. 5 lakhs: 5% tax

3. Rs. 5 lakhs to Rs. 10 lakhs: 20% tax

4. Above Rs. 10 lakhs: 30% tax

New Income Tax Regime (New Tax Regime)

1. Up to Rs. 2.5 lakhs: No tax

2. Rs. 2.5 lakhs to Rs. 5 lakhs: 5% tax

3. Rs. 5 lakhs to Rs. 7.5 lakhs: 10% tax

4. Rs. 7.5 lakhs to Rs. 10 lakhs: 15% tax

5. Rs. 10 lakhs to Rs. 12.5 lakhs: 20% tax

6. Rs. 12.5 lakhs to Rs. 15 lakhs: 25% tax

7. Above Rs. 15 lakhs: 30% tax

Under the new tax regime, taxpayers have the option to choose between the old and the new tax regimes every financial year based on which regime is more beneficial for them. However, if you opt for the new tax regime, you cannot claim certain tax exemptions and deductions that are available under the old tax regime.

It is important to note that the tax slabs and rules are subject to change and you should always consult a tax expert or financial advisor for personalized advice.

How much tax will be deducted for 20 lakhs?Tax calculation example

The amount of tax that will be deducted from a salary of 20 lakhs depends on whether you have chosen the old or the new income tax regime.

If you have chosen the old income tax regime, the tax calculation would be as follows:

1. Up to Rs. 2.5 lakhs: No tax

2. Rs. 2.5 lakhs to Rs. 5 lakhs: 5% tax (Rs. 12,500)

3. Rs. 5 lakhs to Rs. 10 lakhs: 20% tax (Rs. 1,00,000)

4. Above Rs. 10 lakhs: 30% tax (Rs. 3,00,000)

The total tax payable in this case would be Rs. 4,12,500.

If you have chosen the new income tax regime, the tax calculation would be as follows:

1. Up to Rs. 2.5 lakhs: No tax

2. Rs. 2.5 lakhs to Rs. 5 lakhs: 5% tax (Rs. 12,500)

3. Rs. 5 lakhs to Rs. 7.5 lakhs: 10% tax (Rs. 25,000)

4. Rs. 7.5 lakhs to Rs. 10 lakhs: 15% tax (Rs. 37,500)

5. Rs. 10 lakhs to Rs. 12.5 lakhs: 20% tax (Rs. 50,000)

6. Rs. 12.5 lakhs to Rs. 15 lakhs: 25% tax (Rs. 62,500)

7. Above Rs. 15 lakhs: 30% tax (Rs. 3,00,000)

The total tax payable in this case would be Rs. 4,87,500.

Please note that this is just an example and the actual tax calculation would depend on various factors such as the number of exemptions and deductions claimed, the type of salary components, etc. It is always advisable to consult a tax expert or financial advisor for personalized advice.

How can individuals above 20 lakh tax slab save taxes?

Individuals earning above 20 lakhs can save taxes by taking advantage of various deductions and exemptions offered under the Indian Income Tax Act. Some of the common ways to save taxes are:

1. Investing in Tax Saving Instruments: Individuals can invest in tax-saving instruments like Public Provident Fund (PPF), National Saving Certificate (NSC), Equity-Linked Saving Scheme (ELSS), Life Insurance, etc. to avail tax deductions under Section 80C of the Income Tax Act, 1961.

2. HRA Exemption: If an individual is paying rent for a house, they can claim House Rent Allowance (HRA) exemption to reduce their taxable income.

3. Home Loan Interest: Home loan interest can be claimed as a deduction under Section 24 of the Income Tax Act.

4. Medical Insurance: Medical insurance premium paid for self, spouse, children, and parents can be claimed as a deduction under Section 80D of the Income Tax Act.

5. Donation: Donations made to specified charitable organizations are eligible for tax deductions under Section 80G of the Income Tax Act.

6. Saving on Retirement Funds: Contributions made to retirement funds like the National Pension System (NPS) and Employee Provident Fund (EPF) are eligible for tax deductions under Section 80C and Section 80CCD(1) of the Income Tax Act.

It is advisable to consult a financial advisor or tax expert to understand the tax implications of various investments and plan accordingly to optimize tax savings.

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