How To Save Tax For Salary Above ₹20 Lakhs? (2024)

This article outlines various ways for those earning over 20 lakhs in India to save tax legally, including investing in tax-saving funds, health insurance, and charitable donations.

As a salaried individual in India with a yearly income above ₹20 lakhs, knowing how to save tax effectively and legally is important. The Indian government provides various tax-saving options to help individuals reduce their tax burden. This article will discuss about how to save tax for salary above ₹20 lakhs.

Tax Planning for Salaried Employees: Key Points

1. Understand Tax Slabs: Familiarize yourself with the applicable tax slabs. Income ranges determine tax percentages.
2. Invest in Tax-Saving Instruments: Tools like Public Provident Fund (PPF), National Savings Certificate (NSC), and tax-saving fixed deposits offer deductions.
3. Claim HRA: If renting a house, House Rent Allowance (HRA) can be claimed for tax deductions.
4. Utilize Section 80C: Deductions up to a specific limit can be claimed under this section by investing in approved securities.
5. Medical Insurance: Premiums paid can offer deductions under Section 80D.
6. Educational Loans: Interest paid on such loans can be claimed under Section 80E.
7. Submit Proofs Timely: Always provide investment proofs to employers before the deadline.
8. Consider NPS: National Pension System (NPS) contributions can lead to additional tax savings.
9. Home Loan Benefits: Claim deductions on both principal repayment and interest under Section 80C and Section 24 respectively.
10. Stay Updated: Tax laws change. Regularly update your knowledge to maximize savings.

Remember, efficient tax planning can save a considerable amount annually, ensuring optimal financial health. Always consider professional advice for intricate scenarios.

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How to Save tax for Salaried above ₹20 lakhs

• Invest in Tax-Saving Mutual Funds

One of the most popular ways to save tax is to invest in tax-saving mutual funds, also known as Equity Linked Savings Scheme (ELSS). ELSS funds provide tax benefits under Section 80C of the Income Tax Act.

You can claim a tax deduction of up to ₹ 1.5 lakh by investing in ELSS funds. ELSS funds have a lock-in period of three years, which means you cannot withdraw the invested amount before the completion of three years.

• Public Provident Fund (PPF)

PPF is a long-term investment scheme that offers tax benefits under Section 80C of the Income Tax Act. You can claim a tax deduction of up to ₹ 1.5 lakh by investing in PPF. The interest rate on PPF is revised by the government every quarter and currently, it is 7.1% per annum.

PPF has a lock-in period of 15 years, which means you cannot withdraw the invested amount before the completion of 15 years.

• National Pension System (NPS)

NPS is a government-backed retirement savings scheme that provides tax benefits under Section 80C and Section 80CCD of the Income Tax Act. You can claim a tax deduction of up to ₹ 2 lakh by investing in NPS. Additionally, you can claim an additional tax deduction of up to ₹ 50,000 under Section 80CCD(1B).

NPS has two options: Tier 1 and Tier 2. Tier 1 is a long-term investment scheme that has a lock-in period of 15 years, while Tier 2 is a flexible investment scheme that allows you to withdraw your funds at any time.

• Health Insurance

Purchasing health insurance not only provides financial protection in case of a medical emergency, but it also offers tax benefits under Section 80D of the Income Tax Act. You can claim a tax deduction of up to ₹ 25,000 for the premium paid for yourself, your spouse, and your children.

Additionally, you can claim an additional tax deduction of up to ₹25,000 for the premium paid for your parents. If your parents are senior citizens, the tax deduction limit is increased to ₹ 50,000.

• Donations to Charity

Donating to charity is not only a noble act but also provides tax benefits under Section 80G of the Income Tax Act. You can claim a tax deduction of up to 50% of the donated amount. However, it is important to ensure that the charity is registered with the government and has a valid 80G certificate.

• Home Loan

If you have taken a home loan, you can claim tax benefits on both the principal and interest paid under Section 80C and Section 24 of the Income Tax Act, respectively. You can claim a tax deduction of up to ₹ 1.5 lakh on the principal amount and up to ₹ 2 lakh on the interest paid.

• Rent Paid

If you are living in a rented accommodation, you can claim tax benefits on the rent paid under Section 80GG of the Income Tax Act. You can claim a tax deduction of up to ₹ 60,000 per year if you do not receive House Rent Allowance (HRA) from your employer.

• Education Loan

If you have taken an education loan to fund your or your dependent’s higher education, you can claim tax benefits under Section 80E of the Income Tax Act. You can claim a tax deduction on the interest paid on the education loan for a maximum of 8 years. There is no limit on the amount of tax deduction that can be claimed.

• Income From investments

If you have income from investments, such as interest income or rental income, you can claim tax benefits by offsetting the expenses incurred in generating that income. For example, if you have rental income, you can claim tax benefits on the interest paid on the home loan taken to purchase that property, as well as on the property tax paid and other expenses related to the maintenance of the property.

• Opt for the New Tax Regime

In the Union Budget 2020, the government introduced a new tax regime that offers lower tax rates but does not provide tax benefits under Section 80C and other sections of the Income Tax Act.

If you opt for the new tax regime, you can pay tax at a lower rate but cannot claim tax benefits on investments and expenses. Therefore, before opting for the new tax regime, it is important to calculate whether it is beneficial for you or not.

Conclusion

There are various ways to save tax for those earning above ₹20 lakhs, including investing in tax-saving mutual funds, PPF, NPS, health insurance, donations to charity, home loan, rent paid, education loan, and offsetting expenses incurred on generating income from investments.

Additionally, it is important to carefully consider the new tax regime before opting for it. By following these tips, you can effectively and legally reduce your tax burden and how to save tax and save money.

Vakilsearch, a leading online legal service provider in India, can assist with tax planning and filing for those earning over ₹20 lakhs. Our experienced tax experts can provide personalised solutions and guidance to help you save money and comply with tax laws.

Also, Read:

• Learn Income Tax Returns AY 2022-23
  
• How to File Income Tax Returns In India?