One enters the high-income category with a ₹20 lakh salary per annum. At this amount, the tax is fairly high, and so, it’s important to understand how much goes in taxes and what will be left in your pocket for budgeting, investing or planning towards future goals.
Under the new tax structure, the government is looking to make it simple by eliminating several deductions and exemptions and keeping slab rates reasonably lower. For most white-collar individuals, this system is generally simpler and sometimes more advantageous.
Overview of the New Tax Regime
The new regime is based on three broad ideas:
- Fewer deductions and exemptions to track.
- Multiple slabs with progressive rates.
- A standard deduction for salaried individuals and pensioners.
Under the Income Tax Act, salary income is taxed under the head “Income from Salaries”. In the new regime, most popular deductions (such as Section 80C, 80D, HRA exemption, and certain allowances) are not available, but the rates applied to the slabs are lower than the comparable slabs of the old regime.
While tax slabs themselves are not linked to a person’s CIBIL score, maintaining strong credit health often aligns with better financial planning, influencing how individuals approach tax-saving strategies across different regimes.
Key features of the current framework:
- No requirement to maintain detailed proofs for many deductions that are common under the old regime.
- Standard deduction for salaried individuals (for example, ₹50,000 as per recent Finance Acts).
- Rebate for lower-income taxpayers, which generally does not apply to a ₹20 lakh salary, but is relevant for completeness.
- Continued availability of certain employer-linked benefits, such as the employer’s contribution to NPS (subject to limits).
Future budgets may change exact slab amounts or rates. The calculation method, however, will remain broadly the same. For example, consider a simple salary structure:
- Gross annual salary: ₹20,00,000
- Standard deduction (salary): ₹50,000
- Net taxable salary: ₹19,50,000
The slab-wise calculation will then be applied to this taxable income. An income tax calculator can be used in parallel to cross-check.
New Regime Versus Old Regime: Conceptual Comparison
Even though the focus here is on the new regime, many salaried professionals still compare it with the old regime before deciding which option to adopt for the year.
Important distinctions between the two:
- Old regime
- Allows deductions such as Section 80C (PF, PPF, ELSS, etc.), Section 80D (health insurance), and exemptions such as HRA and certain allowances.
- Slab rates are higher, but the taxable income can be reduced significantly if deductions are fully used.
- New regime
- Limited deductions, simpler design.
- Lower slab rates in several bands.
- Often favourable for those who do not invest much in tax-s
- aving products or do not have a home loan or large eligible deductions.
For a person with a ₹20 lakh annual salary who does not claim many deductions, the new regime often results in a lower or comparable tax burden with much simpler filing. For someone who fully utilises Section 80C, claims home loan interest, health insurance, and HRA under the old regime, that older framework can still yield a lower taxable income.
Using Tools And Official References
Because individual situations can differ, it is practical to:
- Use an updated income tax calculator provided by reliable websites or by the tax department itself.
- Check the latest Finance Act and CBDT notifications for any revision in slabs or rebates for FY 2025-26.
- Confirm whether the employer has adopted the new regime as the default and what option is available to the employee to switch, if needed.
These steps reduce the risk of relying on outdated information.
Planning Tax For Salary Of ₹20 Lakh Under New Regime
Even with fewer deductions, some planning is still possible within the framework of the new regime. A few key points are listed below.
- Review salary structure
- Ensure that the salary breakup is clear between basic, allowances, bonuses, and perquisites.
- Some reimbursements and benefits can still be structured efficiently as per company policy and the Income Tax Act.
- Make use of employer benefits
Under the new regime, certain employer-linked contributions retain tax advantages, for example:
- Employer’s contribution to NPS within specified limits.
- Employer’s contribution to recognised provident fund (subject to combined caps with other benefits).
These do not require separate investment decisions by the employee but add value over time.
- Consider voluntary retirement savings
While many popular deductions under Chapter VI-A are not available in the new regime, investing that is retirement-focused is very important:
- Increase voluntary provident fund contributions if suitable.
- Continue disciplined investments in mutual funds or other instruments for long-term goals. Do so even if they do not reduce the tax immediately.
- Monitor TDS and advance tax
- Check monthly salary slips to ensure tax deducted at source (TDS) aligns with the chosen regime.
- If there is additional income (such as interest or capital gains), advance tax may be applicable. Monitoring this avoids interest for short payment.
When Might The Old Regime Still Be Useful?
Although the new regime is now the default for many, some employees with a ₹20 lakh salary may find the old structure more suitable, especially if all the following apply:
- High contribution to Section 80C investments (EPF, PPF, ELSS, life insurance, etc.).
- Significant housing loan interest eligible for deduction under Section 24(b).
- Substantial health insurance premiums for self, spouse, children and parents.
- Eligibility for HRA exemption due to living in rented accommodation in a major city.
In such a case, total deductions can reduce taxable income by several lakh rupees, leading to a lower overall tax for salary, despite the higher nominal slab rates in the old regime. A comparison using both regimes through a calculator before filing is advisable.
Wrapping Up
Knowing how income tax would work on a ₹20 lakh salary under the new regime is important for clear planning, not only at return-filing time but through the year. Once you are aware of the slabs, deductions allowed, and how your employer calculates TDS, it becomes easier for you to estimate the in‑hand income and work on committing savings peacefully.
Reviewing the numbers once with an income tax calculator and comparing against the old regime, if necessary, can prevent errors and promote better financial decisions overall.
FAQs
1. Is the new tax regime compulsory for a ₹20 lakh salary?
The new regime is usually the default, but you can choose the old regime each year while filing, based on which gives lower tax.
2. Should I still invest in tax-saving products under the new regime?
Even if many deductions are not available, disciplined investing in EPF, PPF, NPS or mutual funds remains important for retirement and long‑term goals, beyond immediate tax benefit.
3. How can I quickly estimate tax for a salary of ₹20 lakh?
Use a reliable online income tax calculator, select “new regime”, enter your salary details and standard deduction, then compare the result with an old‑regime calculation before deciding.
Also Read: Use an Income Tax Calculator to Understand Your AY 2025–26 Tax Liability
