How to Legally Save Income Tax on Salaries Above ₹20 Lakhs in 2023

Save Income Tax

Paying taxes is a civic duty. But for high income individuals, the tax outgo can make a serious dent in your earnings. Fortunately, there are legitimate ways to reduce your tax burden while staying compliant with income tax laws.

This comprehensive guide will teach you 10 proven and legal methods to save tax on salaries above ₹20 lakhs per annum in 2023. Follow these tips for smart tax planning and keep more of your hard-earned money.

Introduction: Is It Possible to Legally Minimize Taxes on ₹20 Lakh+ Salaries?

The tax rates in India for incomes above ₹10 lakhs per annum are pretty steep. Individuals earning ₹20 lakhs or more per year fall under the highest 30% tax bracket.

But there are smart and legal ways to reduce your tax liability even if you are a high income earner. With proper tax planning, individuals earning ₹20 lakhs annually can potentially save over ₹1.5 lakhs in income tax every year.

The key is to fully utilize all the tax rebates, deductions and exemptions permitted under the Income Tax Act. Let’s look at how.

Use Tax-Saving Investment Options Under Section 80C

Section 80C of the Income Tax Act allows you to reduce your taxable income by up to ₹1.5 lakhs per year by investing in certain approved investment schemes and expenses.

Some popular Section 80C options include:

  • Public Provident Fund (PPF): Offers guaranteed tax-free returns of up to 7.1% and capital safety. The maximum investment limit is ₹1.5 lakhs per year.
  • Employee’s Provident Fund (EPF): For salaried individuals, contributing more towards EPF above the 12% mandatory amount allows tax savings under Sec 80C.
  • Equity Linked Savings Schemes (ELSS): Investments in ELSS mutual funds up to ₹1.5 lakhs per year qualify for tax deductions. ELSS also offers the lowest lock-in of 3 years among tax-saving instruments.
  • Life Insurance Premiums: The premium paid towards life insurance policies for self, spouse or children is eligible for tax benefits under Section 80C.
  • 5-Year Tax Saving Bank FDs: Offer guaranteed returns with tax savings up to ₹1.5 lakhs under Sec 80C.
  • Sukanya Samriddhi Yojana: Offers tax rebates up to ₹1.5 lakhs per year on deposits made for up to 2 girl children.
  • Home Loan Principal Repayment: Principal repayments of up to ₹1.5 lakhs on home loans taken for self-occupied property are eligible for tax savings under Section 80C.

By making the maximum permitted investments across the above Section 80C options annually, high income earners can potentially save over ₹46,000 in taxes every year.

Get Tax Benefits on Health Insurance Premiums

Having an adequate health insurance cover is necessary today, even more so for high income individuals in higher tax brackets.

The good news is that the premium paid towards health insurance policies also offers tax benefits for self, spouse and dependent children.

Under Section 80D, you can claim deductions on health insurance premium up to ₹25,000 for self, spouse and dependent children.

An additional deduction of ₹25,000 is permitted for health insurance premium paid for parents aged 60 years or above, taking total deduction to ₹50,000.

For very senior citizen parents above 80 years of age, the deduction amount is ₹50,000 per parent, with an overall limit of ₹1 lakh.

So a family floater health plan with coverage for self, spouse, children and parents can potentially save taxes up to ₹50,000 annually for high income individuals.

Claim Interest Deduction on Education Loans

Education loans taken for higher education of self, spouse or children offer huge tax benefits under Section 80E of the IT Act.

The entire interest amount paid on education loans is eligible for tax deduction for up to 8 years from the start of the repayment period. There is no upper limit on the deduction amount.

So if you or your dependents have taken an education loan, be sure to claim deductions on the interest repayment to reduce your tax outgo.

Avail Tax Rebates Under Sections 80D and 80DD

In addition to standard deductions, two sections of the IT Act allow special tax benefits for expenses incurred towards medical treatment and disability:

Section 80D: Get a deduction of ₹75,000 on expenses incurred for medical treatment of a dependent with a disability (40% or more). This limit is ₹1.25 lakhs if the disability is severe (80% or more).

Section 80DD: Claim up to ₹75,000 tax deduction on medical expenses incurred for self or dependant with 40% disability. This goes up to ₹1.25 lakhs deduction if the disability is higher.

So if you have disabled dependents, ensure you claim deductions under the above sections to lower tax liability.

Claim Deductions on Home Loan Interest and Principal

Owning a home involves paying significant EMIs comprising both interest and principal components. The good news is that the Income Tax Act allows separate deductions on home loan interest and principal repayments.

Under Section 24, you can claim deductions on home loan interest paid up to ₹2 lakhs annually. This is over and above the ₹1.5 lakhs deduction permitted on principal repayment under Section 80C.

So if you have a home loan, you can claim deductions up to ₹3.5 lakhs per year – ₹1.5 lakhs principal and ₹2 lakhs interest. This results in tax savings of over ₹1 lakh annually for high income earners.

Making donations to approved charitable institutions and funds is another way to reduce tax liability. Under Section 80G, deductions up to 100% are permitted on certain donations.

For instance, donations made to Prime Minister’s Relief Fund offers 100% tax deduction with no qualifying limit.

Donations made to other approved charities and funds allow 50% deduction without any capping. Certain donations even permit 100% or 50% deduction subject to a qualifying limit.

So if you have a habit of giving, you can save taxes while fulfilling your charitable intents.

Additional Tax Saving Tips

Here are some additional perfectly legal ways to further minimize your taxes:

  • Opt for the new simplified tax regime without deductions if you have limited investments. It offers lower tax rates.
  • Claim standard deduction of ₹50,000 annually on your salary income to reduce tax liability.
  • Set aside a portion of your salary as tax-free allowances like LTA, medical reimbursement, etc. as permitted by your employer.
  • Pre-pay taxes through TDS, advance tax and self-assessment tax before financial year closing to avoid interest penalties.

Choosing Between Old and New Tax Regimes

From FY 2020, taxpayers in India have the option to choose between the old and new tax regimes while filing returns.

The new regime offers lower tax rates but does not permit popular deductions under Section 80C, 80D, standard deduction, etc.

So individuals with limited deductions and expenses are better off choosing the new regime. But for high income earners with sizeable deductions, the old regime with higher rates is more beneficial.

Use online tax calculators to determine your tax liability under both regimes and choose the one that results in lower outgo. Proper regime selection itself can save taxes up to ₹46,000 annually.

Tax Planning Services for High Income Earners

To enjoy maximum tax savings through planning, deductions and exemptions, it helps to consult a tax planning expert, especially if your income exceeds ₹15 lakhs per annum. offers end-to-end tax planning and filing services for salaried employees and business owners.

Their tax experts will analyze your financial profile to identify tax planning opportunities to legally minimize your liability. They also ensure accurate tax filing and compliance.


The above tips can help high income professionals earning ₹20 lakhs or more per year save over ₹1.5 lakhs in income tax through proper planning and deductions.

Remember to make permitted investments under Section 80C, get health insurance coverage, prepay taxes, and file tax returns correctly before the due date. This will ensure you maximize tax savings while avoiding penalties.

With the help of a good tax advisor, high net worth individuals can potentially reduce their tax outgo and increase investible income. So be sure to consult an expert like for your tax planning and filing needs.

Follow these tips for smarter tax planning and keep more of your hard-earned money each year!

Frequently Asked Questions

1. How much tax do I need to pay if my salary is ₹20 lakhs per year?

  • For an annual salary of ₹20 lakhs, the tax liability will be approximately ₹4.2 lakhs under the old tax regime and ₹3.1 lakhs under the new regime without claiming any deductions.

2. What is the best way to save tax on ₹20 lakh salary?

  • The best way is to invest ₹1.5 lakhs under Section 80C in instruments like PPF, ELSS, life insurance, etc. Also claim ₹50,000 deduction on health insurance premium and utilize other rebates. This can potentially save over ₹1.5 lakhs tax annually.

3. Can I avoid paying any tax if my income is above ₹10 lakhs?

  • It is not possible to avoid paying complete tax if your annual income exceeds ₹10 lakhs. However, you can significantly reduce tax liability through permitted deductions, proper regime selection and tax planning.

4. Should I choose old or new income tax regime for 20 lakhs salary?

  • If you have sizeable deductions of over ₹2 lakhs, choosing the old regime with higher rates but more deductions leads to lower overall tax outgo. Use online calculators to determine the optimal regime.

5. How much self-assessment tax should I pay if my income is ₹20 lakhs annually?

  • You need to pre-pay 100% of your estimated tax liability for the year through TDS, advance tax and/or self-assessment tax. This will help avoid interest penalties.

So in summary, with prudent tax planning and claiming all eligible deductions, it is possible to save over ₹1.5 lakhs income tax annually on salaries above ₹20 lakhs. Consult a tax expert and follow the tips shared above.

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