As a salary earner with an income above ₹20 lakhs, you will likely fall into a higher tax bracket in India. This can significantly reduce the amount of money you take home every month. Fortunately, there are several ways to minimize your tax liability and keep more money in your pocket.
9 Ways Individuals Earning More Than ₹20 lakhs Can Save Tax In India
Make the Most of Section 80C
Section 80C of the Income Tax Act provides for a tax deduction of up to ₹1.5 lakhs on eligible tax-saving investments and expenses. Some of the most common tax saving investments under this section include Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), and Equity Linked Savings Scheme (ELSS).
Invest in a Health Insurance Policy
By investing in a health insurance policy, individuals can avail of a tax deduction of up to ₹25,000 under Section 80D. Additionally, if the individual is above 60 years of age, the tax deduction limit increases to ₹50,000.
Rent Out Your House Property
If you own a second property, you can earn a rental income. The rental income is taxable, but you can avail of a tax deduction for the interest paid on the home loan under Section 24. The tax deduction limit is up to ₹2 lakhs.
Use the HRA Exemption
If you are living on rent, you can avail of the House Rent Allowance (HRA) exemption. HRA is a component of your salary and is exempt from tax, provided you are living on rent and the rent paid is more than 10% of your basic salary.
Invest in National Pension Scheme (NPS)
The National Pension Scheme (NPS) is a tax-efficient investment option for that earning above ₹20 lakhs. Tax-saving investments made in NPS are eligible for a tax deduction of up to ₹1.5 lakhs under Section 80CCD (1B).
Claim Tax Deductions on Education Loans
If you have taken an education loan for yourself or your dependents, you can avail of a tax deduction of up to ₹1.5 lakhs under Section 80E. The tax deduction is available for a maximum period of 8 years.
Make Use of the LTA Exemption
Leave Travel Allowance (LTA) is an allowance provided by the employer to an employee for travel expenses incurred while on leave. LTA is exempt from tax, and individuals can claim this exemption twice in a block of 4 financial years.
Use the Deduction for Donations
Donations made to registered charitable institutions are eligible for tax deductions under section 80G of the Income Tax Act. This includes donations made to political parties and religious organizations.
Claim Tax Deduction for Professional Development
Expenditure incurred towards professional development can be claimed as a tax deduction under section 80C. This includes courses and training programs related to one’s line of work.
Wrapping Up
Individuals earning a salary above ₹20 lakhs can make the most of these tax-saving options to reduce their tax liability. However, it is important to note that the tax laws are subject to change, and it is advisable to consult a tax expert to ensure that you are availing of the tax benefits in a compliant manner.
Key takeaways
9 Ways Individuals Earning More Than ₹20 lakhs Can Save Tax In India
As an individual, it is important to save on tax and ensure that your hard-earned money is put to good use. In India, those earning a salary above ₹20 lakhs are subject to a higher tax and therefore need to be extra careful when it comes to tax-saving options.
- Make the Most of Section 80C
- Invest in a Health Insurance Policy
- Rent Out Your House Property
- Use the HRA Exemption
- Invest in National Pension Scheme (NPS)
- Claim Tax Deductions on Education Loans
- Make Use of the LTA Exemption
- Use the Deduction for Donations
- Claim Tax Deduction for Professional Development
