Crossing the ₹20 lakh annual salary mark is a proud milestone. But it also brings with it a new set of tax responsibilities. In this blog, we will walk you through a simplified guide to saving tax efficiently in Financial Year 2025-26. Whether you’re trying to decide between the old and new tax regimes, or looking to make the most of deductions, this blog is crafted to help high earners like you make smart financial choices.
Like what you’re reading?
Get our latest, straight to your inbox.
New vs. old tax regime: Which one works best for those earning more than ₹20 lakh?
When your income crosses the ₹20-lakh mark, you enter one of the highest tax brackets in India. Under the old tax regime, any income exceeding ₹10 lakh is taxed at 30%, plus a 4% health and education cess. In contrast, the new tax regime offers lower tax rates but restricts the deductions you can claim. This makes tax planning not just beneficial but necessary. It’s important to understand how much of your income will be taxed and to identify the options available for efficiently reducing your tax burden.
A detailed comparison between the old tax regime and the new tax regime, based on your actual deductions, is essential for making an informed choice.
The choice between the old and new tax regimes depends on your personal finances and the deductions you are eligible to claim. If your deductions such as home loan interest, contributions to provident fund, insurance premiums, and investment schemes add up to over ₹7 to ₹8 lakhs annually, then sticking to the old regime may result in greater tax savings. On the other hand, if your financial planning is minimal or you prefer simplicity, the new regime might be more suitable. It’s best to calculate your tax liability under both regimes before choosing.
Will you get standard deduction, Section 87A benefit if you earn above ₹20 lakh?
Under both tax regimes, salaried individuals are entitled to a standard deduction, ₹50,000 under the old regime whereas ₹75,000 under the new regime. However, at an income level above ₹12 lakhs, you are not eligible for the Section 87A rebate, which is meant to provide relief to low-income taxpayers. This means your entire taxable income is subject to tax as per the applicable slabs, making tax planning even more important.
How to maximise Section 80C benefits when you earn more than ₹20 lakh
Section 80C remains a cornerstone of tax-saving for high-income earners. You can claim up to ₹1.5 lakhs by investing in eligible instruments such as ELSS (Equity Linked Saving Schemes), PPF (Public Provident Fund), NSC (National Savings Certificates), EPF (Employees’ Provident Fund), and life insurance premiums. Home loan principal repayments also qualify under this section. Even lesser-known options like Sukanya Samriddhi Yojana for daughters and contributions to the Agniveer Corpus Fund are valid. These deductions are especially valuable under the old regime.
How to claim Section 80D deductions for an income of more than ₹20 lakh
Medical insurance premiums provide additional avenues for tax savings under Section 80D. You can claim up to ₹25,000 for insurance premiums paid for yourself, your spouse, and children. If you also pay for health insurance for senior citizen parents, you can claim an additional ₹50,000. In some cases, preventive health checkups allow an additional claim of ₹5,000 within the overall limit. These deductions not only lower your tax liability but also ensure financial protection for your family.
What NPS tax benefits can you claim if you earn more than ₹20 lakh?
The National Pension Scheme (NPS) is an excellent tool for both tax-saving and retirement planning. You can claim an extra deduction of ₹50,000 under Section 80CCD(1B), over and above the ₹1.5 lakh limit under 80C. This provision is especially beneficial for those in the high-income bracket and is applicable only under the old regime. Moreover, if your employer contributes to your NPS account, that contribution, up to 10% of your basic salary under the old regime (14% of basic salary under the new regime), is fully deductible under Section 80CCD(2).
How to restructure your salary to get more tax benefits
Strategically structuring your salary components can significantly enhance your take-home pay. Including tax-exempt allowances like House Rent Allowance (HRA), Leave Travel Allowance (LTA), meal coupons, fuel reimbursements, and mobile or internet reimbursements can significantly reduce your taxable income. For instance, if you live in a rented house and maintain proper rent receipts, your HRA can be partially or fully tax-exempt. A well-structured salary not only saves taxes but also improves overall financial well-being.
Owning property or real estate? How to claim home loan deductions smartly for income of over ₹20 lakh
Investing in real estate comes with substantial tax benefits. Under Section 80C, you can claim the principal repayment of a home loan. Additionally, interest payments on the home loan are deductible up to ₹2 lakhs under Section 24(b). First-time home buyers may also be eligible for an additional deduction of ₹1.5 lakhs under Section 80EEA, provided specific criteria are met. These deductions can collectively result in significant tax savings for individuals with home loans.
Capital gains and income from other sources at ₹20 lakh+ salary
High-income individuals often have additional sources of income, such as capital gains, dividends, or rental income. Long-term capital gains on listed equity shares exceeding ₹1.25 lakh are taxed at 12.5%, while short-term gains are taxed at 20%. However, reinvestment in 54EC Bonds can exempt some capital gains from tax. It is crucial to declare all such incomes and plan taxes accordingly to avoid penalties.
Can education loans still offer tax benefits at ₹20 lakh income?
Yes, the interest paid on education loans for higher studies qualifies for a deduction under Section 80E. This applies to loans taken for self, spouse, or children and is available for a maximum of 8 years. The good part is that there’s no upper limit on the amount or any restriction based on your income level. This benefit is particularly valuable for those funding expensive higher education like MBAs or international degrees.
Maximise lesser-known deductions and exemptions for ₹20 lakh+ salary
Many taxpayers overlook deductions that can collectively make a big difference. Contributions to approved charities under Section 80G are deductible. Investments in the Agniveer Corpus Fund qualify under Section 80CCH. Additionally, certain employer-provided benefits like reimbursements for mobile, internet, fuel, and books can be non-taxable if claimed properly. Fully utilizing these options ensures that no money is left on the table.
Old vs. new tax regime: Which one will save more tax if you earn more than ₹20 lakh?
To truly understand the impact of choosing the right tax regime, let’s explore four real-world scenarios. Each individual earns ₹20 lakhs or more and represents a unique tax planning profile from aggressive savers to those with no deductions at all. These examples are designed to reflect practical situations many professionals face, such as home loan EMIs, elderly parent healthcare costs, or simply not investing for deductions.
- Dipti (₹20 lakh salary) – Maxes out on deductions, uses NPS, claims HRA, contributed to Agniveer Corpus Fund.
- Parag (₹22 lakh salary) – Similar profile to Dipti but invests more in NPS instead of contributing to Agniveer Corpus Fund.
- Dhwani (₹25 lakh salary) – Claims home loan interest under Section 24(b) along with medical premium and other deductions.
Dhwani and Parag benefit significantly due to higher deductions and home loan interest for self-occupied property, showing the power of planning under the old regime. These examples emphasise how leveraging exemptions like HRA, NPS, insurance, and home loan interest can offer immense savings.
Getting a salary of more than ₹20 lakh? CTC vs in-hand salary & tax implications
A ₹20 lakh CTC doesn’t translate to ₹20 lakhs in hand. Typically, your monthly take-home salary could range between ₹1.15 to ₹1.6 lakhs, depending on the structure and the tax regime chosen. Components like Provident Fund, gratuity, performance bonuses, and tax deductions reduce the actual in-hand salary. A smart tax regime choice and proper use of deductions can significantly boost your monthly net income.
Mistakes to avoid while planning taxes at ₹20L+ salary
Many high earners make the mistake of not evaluating both tax regimes before filing. Others miss out on investment deadlines, fail to submit necessary proofs, or overlook benefits like employer NPS contributions. Taking a proactive approach, starting early in the financial year, maintaining proper documentation, and consulting a tax professional can help avoid common pitfalls and maximise savings.
A salary above ₹20 lakhs opens up a wide range of tax planning options. With a strategic approach and smart investment decisions, you can retain more of what you earn. Whether you prefer the simplicity of the new regime or the flexibility of deductions under the old one, always tailor your plan to your financial goals and consult a tax professional for personalised advice.
