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Income Tax News: Once again, it's that time of year when we dig through all of our financial documents to find ways to save and invest our hard-earned cash. Finding ways to reduce your tax burden is especially important as tax season approaches. Remember that there are still ways to significantly reduce your tax liability even if your salary is on the higher end, say between Rs 20 lakhs and Rs 25 lakhs. Let's examine the various policies implemented by the government and the Income Tax Department in more detail so that you can benefit from tax savings on 20L income.
Choosing the Right Regime
Prior to delving into the particulars of reducing taxes on your 20L income, you need to assess if it will be more advantageous for you to file taxes under the current tax regime or the new one. New tax slabs and significantly lower tax rates than the previous tax regime were introduced by the new tax regime, which was unveiled in Budget 2020.
The highest applicable tax rate under the new tax regime—30%—would apply to salaries between Rs 20 lakhs and Rs 25 lakhs.Interestingly, under the current tax system, your salary would place you under the same 30% tax slab. For you, the most important distinction between the two regimes would be the type of deductions you can take advantage of. Your options for tax savings on 20L income will be limited under the new tax regime, which forces taxpayers to give up on a number of popular deductions. It may therefore be best for you to file your taxes using the current tax system and take advantage of all the available deductions.
Tax Saving Strategies and Applicable Deductions
There are numerous tax-saving options and programmes available to Indian taxpayers to lessen their tax liability. This is due to the fact that the Income Tax Department provides a range of deductions to taxpayers, particularly through the Income Tax Act of 1961.
The following are some of the best ways to save taxes on 20L income that you can take advantage of:
Investments
In India, the majority of taxpayers take advantage of the Section 80C deduction. This is due to the fact that Section 80C allows for deductions of up to Rs. 1.5 lakhs for investments made in a variety of beneficial instruments.
These include provident funds, such as the Employee Provident Fund (EPF) and Public Provident Fund (PPF), that are managed by the government to help you save for the future after you leave your job. They also consist of market-linked investment choices like Unit Linked Insurance Plans (ULIP) and Equity Linked Savings Scheme (ELSS). By making an investment in a specific type of fixed deposit known as a Tax Saving Fixed Deposit, which helps you specifically lower your taxable income, you can also take advantage of Section 80C deductions. The Sukanya Samriddhi Yojana is an additional beneficial Section 80C investment for parents of girls, as it creates a fund for their future needs and education.
Pension
Through the National Pension Scheme (NPS), which is supported by the government, you can also reduce your taxes while accumulating retirement savings. You can deduct employee contributions under Section 80CCD (1), your own contributions under Section 80CCD (1B), and your employer contributions under Section 80CCD (2) with NPS.
Donations
You can also benefit from tax savings on 20L income under Section 80G of the Income Tax Act when you donate to government-backed relief funds, NGOs, and charities. Donations made to these organisations are fully tax-exempt.
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