How can a salaried individual with salary between Rs 20L to Rs 25L save taxes in India?
That time of the year is upon us again when we pull out all our financial records and try to determine ways of both investing and saving our hard-earned money. In particular, as the tax season looms above, it is crucial to figure out how you can lower your tax burden.
Keep in mind that even if your salary is on the higher end, ranging anywhere between Rs 20 lakhs to Rs 25 lakhs, you can still considerably lower your tax liability by various means. Let us take a closer look at the many provisions by the government and the Income Tax Department by which you can avail tax saving on 20L income.
Assessing your Tax Slab
Before getting into the specifics of tax saving on your 20L income, you must evaluate whether you will be better off filing taxes under the new tax regime or the existing tax regime.
The new tax regime was announced in Budget 2020 and introduced new tax slabs as well as much lower tax rates than the old tax regime. For a salary ranging between Rs 20 lakhs and Rs 25 lakhs, the applicable tax rate under the new tax regime would be the highest, that is 30%.
Incidentally, this is the same tax slab that your salary would fall under according to the existing tax regime, that is 30%. The crucial difference between the two regimes for you would be the choice of deductions you avail.
As the new tax regime compels taxpayers to give up on various popular deductions, your choices in tax saving on 20L income will be restricted under this regime. Therefore, it might be ideal for you to file your tax under the existing tax regime and avail various available deductions.
Tax-Saving Options and Relevant Deductions
As a taxpayer in India, there is a wide array of tax-saving instruments and schemes you can avail to reduce your tax burden. This is because the Income Tax Department and especially the Income Tax Act, 1961 offers taxpayers a variety of deductions.
Here are some of the most beneficial tax-saving options you can avail for tax saving on 20L income:
These include government-managed provident funds to save for your future after employment, such as the Employee Provident Fund (EPF) and Public Provident Fund (PPF). They also include market-linked investment options such as Equity Linked Savings Scheme (ELSS) and Unit Linked Insurance Plans (ULIP).
You can also avail Section 80C deductions by investing in a particular kind of FDs known as Tax Saving Fixed Deposits that help you specifically lower your taxable income. Another useful Section 80C investment for parents of girl children is the Sukanya Samriddhi Yojana, that builds a fund for their education and future needs.
Pension - You can also save taxes while building a retirement corpus by the means of the government-backed National Pension Scheme (NPS). With NPS, you can avail employee contribution deduction under Section 80CCD (1), self-contribution deduction under 80CCD (1B) and employer contribution under Section 80CCD (2).
Donations - Section 80G of the Income Tax Act also allows you to avail tax saving on 20L income for making donations to charities, NGOs and government-backed relief funds. The amounts donated to such organizations are entirely exempted from tax.
Others - Section 80TTA allows you to avail deduction up to Rs. 10,000 for Interest accrued on your Savings Bank Account. Section 80E allows for deductions on interest for your home loan while Section 80EE allows for deductions on interest for your education loan.
At the end of the day, as a taxpayer with a range of salary between Rs 20 lakhs and Rs 25 lakhs, you have a wide assortment of tax saving options to choose from. All that remains is to determine your financial goals and find the schemes and deductions that fit into your overall priorities.
However, one tax-saving option should ideally be on the list of every family and individual - term insurance. If you too are looking for a reliable term plan for your needs, consider availing the iSelect+ Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance. This term plan ensures extensive coverage to your family and provides you with the opportunity to avail deductions up to Rs. 1.5 lakhs under Section 80C.
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