If you are someone who earns more than Rs. 20 Lakh as your annual salary and wants to save taxes, this article is for you. In this article, we will discuss a few tax-saving tactics that can help taxpayers maximize their savings even if their annual income is above Rs. 20 lakh.

How To Save Tax On Salaries Above Rs. 20 Lakh?

A home loan can help you get tax deductions under Section 80C

If you have taken a home loan, you can claim a deduction for the interest paid on the loan. Section 24(b) allows for a tax deduction on the interest portion of a house loan up to Rs 2 lakh annually. Furthermore, if you rent out the newly bought home, the entire interest component is exempt from annual income tax calculations.

A deduction of Rs 1.5 lakh can be claimed under section 80C for the repayment of the principal of a home loan opted for buying a house or construction of a new house.

Section 80EEA also allows you to claim an extra reduction in your annual tax liability when you are a first-time homeowner.

Buy a health insurance policy

You are also eligible to get a tax benefit for the premium paid for health insurance. The maximum permissible deduction under Section 80D is Rs 50,000 for senior citizens and Rs 25,000 for individuals below 60 years of age. Individuals can also claim a deduction for the premium paid for the health insurance of their parents.

Claim HRA exemption

House Rent Allowance (HRA) is an exemption in the IT Act that can help reduce taxes – partially or completely. If your House Rent Allowance (HRA) is part of your salary, you can ask for a tax benefit for the money you are paying in rent. The exemption amount is determined on the basis of actual rent paid, HRA received, and the location of the rented accommodation. 

HRA Calculation in Salary

You can claim an exemption for the lowest of the below-mentioned amounts: 

1. The actual rent paid minus 10% of your basic salary.

2. The actual amount of HRA given to you.

3. 50% of your basic salary (for a metropolitan city).

The minimum figure of these three is the HRA you can claim for tax deductions.

By claiming an HRA exemption, you can reduce your taxable income and save money on taxes.

Invest in tax-saving instruments

Investing in tax-saving instruments is one of the best ways to bring down your taxable income. Some of the popular tax-saving options include Equity-Linked Savings Schemes (ELSS), Public Provident Funds (PPF), Sukanya Samriddhi Yojana, National Pension System (NPS), and 5-year bank fixed deposits.

Choose the new tax regime

The newly introduced new tax regime offers lower tax rates and removes the need for claiming deductions and exemptions. If you are someone who is not claiming too many deductions, you can opt for the new tax regime to save money on taxes.

Under the new tax regime, depending on the income slab an individual can claim tax rates of 5%, 10%, 15%, 20%, and 30%. However, you won't be eligible to claim deductions under Section 80C, Section 80D, and other sections of the Income Tax Act. However, it is always advisable to carefully evaluate your tax liability under both the old as well as new tax regimes before reaching any final decision.