Roshan is a car mechanic in Mumbai, whose monthly turnover is ₹ 2,00,000. With this turnover, he has to pay salaries for his workers, shop rent, and other expenses:
| Monthly Income | ₹ 2,00,000 |
| Rent | ₹ 10,000 (-) |
| Expenses | ₹ 30,000 (-) |
| Electricity Bill | ₹ 15,000 (-) |
| Roshan’s Average Monthly Income | ₹ 55,000 (Net) |
With his share of ₹ 55,000, he applies for a personal loan to renovate his garage. He gets ₹ 3,00,000 with an interest rate of 12% and 4 years tenure. Now he has to pay the EMI of ₹ 7,900, which leads to ₹ 47,100 as his monthly earnings.
Irrespective of this, Roshan has to pay his 10% of income tax, which is ₹ 56,250 per year. All your hard-earned money goes to the government in the form of tax. The new tax slabs aim for ₹,17,500 in savings on income. But do you know how to stop it, even if your annual income is ₹ 20 lakhs? This blog enumerates how to save taxes for an income of ₹ 20 lakhs.
What is income tax?
It is imposed by the Government of India on your earnings for that specific financial year. Taxes are collected from salaried individuals to generate revenue for the government to develop the country’s infrastructure. The tax slabs are different according to the nature of income. Nonetheless, one can get an exemption from taxes.
Tax Slabs
| Income | Old Tax Slabs | New Tax Slabs |
| Up to ₹2.5 lakhs | NIL | NIL |
| ₹ 2.5 lakhs to ₹ 5 lakhs | 5% | 5% |
| ₹ 5 lakhs to ₹ 7.5 lakhs | 20% | 10% |
| ₹ 7.5 lakhs to ₹ 10 lakhs | 20% | 15% |
| ₹ 10 lakhs to ₹ 12.5 lakhs | 30% | 20% |
| ₹ 12.5 lakhs to ₹ 15 lakhs | 30% | 25% |
| Above ₹ 15 lakhs | 30% | 30% |
The new tax slabs offer low tax rates with some deductions. Therefore, one must be adept at taxation and its laws. Similarly, you can also save taxes based on premium plans and income levels.
Methods to Save Tax
- The Benefits of 80C
Under Section 80C, one can avail tax benefits of ₹150,000 by investing in the following schemes.
- Public Provident Fund (PPF).
- Equity Linked Savings Scheme (ELSS).
- National Pension Scheme (NPS).
- Employee Provident Fund (EPF).
- Tax-Saving Fixed Deposits
- Investment in Health Insurance
Under section 80D, those who invest in health insurance premiums can avail themselves of tax deductions. For example, Roshan can have a tax benefit of ₹ 25,000 for his LIC policy. Suppose if Roshan is a senior citizen, he can avail ₹ 50,000 deductions.
- Home Loan Benefits
Home loan applicants can claim tax deductions. According to Section 80C, one can claim ₹ 1.5 lakhs for principal repayment and ₹ 2 lakhs on the payment of interest in a home loan, under Section 24(b).
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- National Pension Scheme (NPS)
An investment in NPS is not only about financial security after retirement but also comes with tax benefits. According to Section 80CCD (1B), NPS has a deduction of ₹50,000. In contrast, Section 80C has ₹150,000 as a limit.
- Educational Loans
Under Section 80E of the Income Tax Act, one can claim a deduction on interest paid for educational loans. It is available for 8 years from the repayment of the loan.
- Exemptions on Capital Gain
Investments in stock markets also bear taxation. The Long-term capital gains (LTCG) that exceed ₹100,000 are taxable at 10%. Similarly, investments in properties avail exemptions under Section 54.
- Taxation on Charity
Under Section 80G, one can save their hard-earned income by donating to charity trusts and organisations. It accounts for 50% to 100% of tax deductions.
Conclusion
With an income of ₹20 lakhs, one can save the tax to increase the wealth. It requires meticulous investments in insurance, stocks, and properties. Even educational loans can be shown in tax calculations. The above-mentioned tax-saving tips can be applied to high-income people. It is also advisable to consult tax professionals to avail of taxation benefits.