Zero Tax Strategy For ₹20 Lakh Salary: Experts Reveal Legal Deductions You Can Use

In India, earning ₹20 lakh per annum might place you in a higher income tax bracket, but with expert planning, it's entirely possible to reduce your tax liability to zero—legally. The old tax regime, despite being complex, allows multiple deductions and exemptions which, if strategically used, can bring your net taxable income down to ₹5 lakh. According to financial experts, this makes you eligible for a full rebate under Section 87A. Let’s decode this smart tax-saving formula in a step-by-step manner.

A Closer Look At The Salary Structure

To understand how deductions work, assume an annual CTC (Cost to Company) of ₹20,00,000. Typically, this could be broken down as:

• Basic Salary: ₹8,00,000

House Rent Allowance (HRA): ₹4,00,000

Special Allowance: ₹6,50,000

Leave Travel Allowance (LTA): ₹1,50,000

This basic structure helps in optimising exemptions such as HRA and LTA under the old regime.

Claiming House Rent Allowance Smartly

If you live in a metro city and pay significant rent, you can claim a sizeable HRA exemption. Assuming:

• Rent paid is ₹5,00,000

10% of basic salary is ₹80,000

50% of basic salary (for metro cities) is ₹4,00,000

The exemption is calculated as the lowest of the three:

• HRA received: ₹4,00,000
  
  
• Rent paid – 10% of basic: ₹4,20,000

50% of basic: ₹4,00,000

Thus, ₹4,00,000 is exempt from taxable income under HRA.

Leveraging Leave Travel Allowance

LTA of ₹1,50,000 can be claimed for domestic travel expenses if it complies with conditions specified by the Income Tax Department. Proper documentation is essential, and the claim must be made as per the exemption rules.

Standard Deduction and Initial Income Reduction

Under the old tax regime, you are entitled to a standard deduction of ₹50,000 on your salary income. Adding HRA (₹4,00,000) and LTA (₹1,50,000), you’ve already reduced ₹5,50,000 from the total income, bringing taxable income to ₹14,50,000.

Making Full Use of Section 80C

You can reduce ₹1,50,000 under Section 80C by investing in options such as:

• Public Provident Fund (PPF)
  
  
• Equity Linked Savings Scheme (ELSS)
  
  
• Employee Provident Fund (EPF)
  
  
• National Savings Certificate (NSC)
  
  

These are common, safe, and widely recommended tax-saving instruments.

Additional Relief With NPS Contributions

Under Section 80CCD(1B), you can claim ₹50,000 for personal contributions to the National Pension System (NPS).
Also, if your employer contributes 10% of your basic salary to NPS (i.e., ₹80,000), it is deductible under Section 80CCD(2).

Deductions Under Section 80D For Medical Insurance

If you pay health insurance premiums, you can claim:

• ₹25,000 for yourself and your family (non-senior citizens)
  
  
• ₹50,000 for senior citizen parents
  
  

Assuming both are applicable, you can get a deduction of ₹75,000.

Interest On Housing Loan Under Section 24(b)

If you own a self-occupied house and pay EMIs, interest up to ₹2,00,000 can be deducted annually under this section. This is a major relief for salaried individuals with home loans.

Other Useful Deductions To Note

• Education Loan Interest: Up to ₹85,000 deductible under Section 80E.
  
  
• Interest from Savings Account: ₹10,000 under Section 80TTA.
  
  
• Electric Vehicle Loan Interest: ₹1,50,000 under Section 80EEB.
  
  
• Charitable Donations: Up to ₹1,00,000 deductible under Section 80G (based on approved organisations).

Bringing Net Taxable Income To ₹5 Lakh

By using all the deductions mentioned:

• From ₹14,50,000 taxable, you can deduct ₹9,50,000 through a combination of 80C, 80D, NPS, loan interests, and donations.
  
  
• This brings your net taxable income to ₹5,00,000.
  

As per current tax slabs under the old regime, income up to ₹5,00,000 qualifies for Section 87A rebate of ₹12,500, effectively bringing your final tax liability to zero.

Disclaimer: This article is for informational purposes only and should not be considered as professional financial advice. Tax benefits are subject to eligibility and documentation. Always consult a qualified tax advisor for personalised tax planning. Calculations and eligibility discussed are based on expert opinions and current income tax laws applicable for FY 2025–26 (AY 2026–27).