Income Tax on 20 Lakh Salary

Earning Rs. 20 lakh a year puts you in a strong financial position—but it also means a bigger slice of your income goes to taxes. The good news? The New Tax Regime for 2025–26 has made things simpler, especially for those with higher salaries.

If you are wondering, “Should I stick with the Old Regime or switch to the New one?”—you are not alone. Many salaried professionals are weighing their options to figure out which path offers the best value. And that’s exactly what this guide helps you do.

With the right understanding of slabs, exemptions, and smart planning, you can cut down your tax outgo and boost your net income. Ready to see how much you can actually save? Let’s break it down.

Why understanding tax slabs for Rs. 20 lakh salary is crucial

If you earn Rs. 20 lakh annually, you fall into the higher-income category, which means your tax liability is significant. The Old and New Regimes offer different approaches to taxation, and choosing the right one can impact your financial health.

The New Regime, introduced to simplify tax calculations, is particularly beneficial for individuals with fewer deductions. Unlike the Old Regime, it eliminates the need for complex tax planning while offering lower rates.

What is the Budget 2025 update on the income tax?

The Budget 2025-26 has brought several changes to income tax rules, especially for individuals earning Rs. 15 lakh and above. Here are the key updates:

Revised tax slabs under the New Regime:

• The New Regime now features lower tax rates for higher-income slabs, making it more attractive for those who do not claim multiple deductions.
• For a Rs. 20 lakh salary, the effective tax rate under the New Regime is lower compared to the Old Regime for most individuals.

Standard deduction inclusion: 

The New Regime now includes a standard deduction of Rs. 50,000, which was previously available only under the Old Regime.

Simplified compliance: 

Filing taxes has become easier under the New Regime due to reduced paperwork and fewer exemptions to track.

These changes aim to encourage more taxpayers to switch to the New Regime. 

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While the New Regime offers simplicity, some aspects of the Old Regime remain unchanged, making it a viable option for individuals who maximise deductions. Here are the key features that remain the same:

Deductions under Section 80C:
 

Investments in instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), and National Savings Certificates (NSC) continue to provide tax benefits under the Old Regime.

Health insurance deductions:
 

Section 80D allows deductions for premiums paid towards health insurance for yourself and your family.

Housing loan benefits:
 

Interest paid on home loans qualifies for deductions under Section 24(b), offering significant savings for homeowners.

Despite these benefits, high-income earners often find the New Regime more appealing due to its straightforward structure.

The 2025 Budget has introduced several measures to benefit individuals earning Rs. 15 lakh and above. Here is how these changes impact Rs. 20 lakh salary earners:

Reduced surcharge for high earners: 

The surcharge on income above Rs. 2 crore has been reduced, indirectly benefiting individuals in the Rs. 20 lakh bracket by creating a more equitable tax structure.

Simplified tax filings: 

The New Regime eliminates the need to track multiple deductions, reducing the complexity of filing returns.

Lower effective tax rates: 

With revised slabs and the inclusion of a standard deduction, the New Regime ensures lower effective tax rates for most taxpayers.

These updates not only simplify taxation but also make it easier for high-income earners to plan their finances.

While the New Regime offers lower tax rates, strategic planning can further reduce your tax liability. Here are some effective ways to save tax on a Rs. 20 lakh salary:

• Invest in tax-saving instruments: Under the Old Regime, you can invest up to Rs. 1.5 lakh in PPF, ELSS, or NSC to claim deductions under Section 80C.
• Utilise health insurance benefits: Premiums paid for health insurance policies qualify for deductions under Section 80D, reducing your taxable income.
• Claim housing loan benefits: If you have a home loan, the interest component can be deducted under Section 24(b), offering significant savings.
• Contribute to retirement plans: Contributions to the National Pension System (NPS) provide additional tax benefits under Section 80CCD(1B).

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Income tax slabs under Old vs New Income Tax Regime

Understanding the tax slabs under both regimes is crucial for making an informed decision. Here is a simplified comparison:

While the Old Regime allows deductions, the New Regime offers lower rates, making it ideal for those with minimal exemptions. 

How to save tax on Rs. 20 lakh salary?

Here is a specific example to illustrate how you can save tax on a Rs. 20 lakh salary:

• Leverage Section 80C: 

By investing Rs. 1.5 lakh in PPF or ELSS, you can reduce your taxable income to Rs. 18.5 lakh.

• Claim housing loan interest: 

If you pay Rs. 2 lakh in home loan interest, your taxable income further reduces to Rs. 16.5 lakh.

• Utilise health insurance deductions: 

Premiums of Rs. 25,000 for family health insurance can bring your taxable income down to Rs. 16.25 lakh.

By combining these strategies, you can significantly lower your tax liability. 

Conclusion

The Budget 2025-26 has made the New Regime a compelling choice for high-income earners, thanks to its simplified structure and lower tax rates. For individuals earning Rs. 20 lakh annually, understanding the differences between the Old and New Regimes is essential to optimise savings.

With the right tax planning tools and strategies, you can reduce your tax burden and enjoy greater financial freedom. 

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