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For this, you have to first understand the CTC breakup of Rs 20 lakh. In this, your basic salary will be Rs 8 lakh (40%of CTC), HRA 4 lakh rupees, special allowance will be Rs 6.5 lakh and LTA 1.5 lakh rupees.

HRA depends on salary structure, rent and city. Suppose HRA is 50% of the basic salary. In non-Metro cities, HRA can be up to 40% of the original salary. But you get only 10% tax exemption on the payment of rent.

Suppose you have paid 5 lakh rupees as rent in the whole year. It is Rs 4.2 lakh after decreasing 10% of its basic salary i.e. Rs 80,000. Whatever will be less of these three, it will be your HRA exemption. That is, your HRA discount was 4 lakh rupees.

After reducing the standard deduction of Rs 4 lakh, HRA of Rs 4 lakh, LTA of Rs 1.5 lakh and Rs 20 lakh CTC, your taxable income is Rs 14 lakh after reducing the standard deduction of Rs 50,000.

Apart from this, under Section 80C of the Income Tax Act, a cut of Rs 1.5 lakh can be made annually. To avail Section 80C, you can invest in schemes like PPF, NSC, ELSS and EPF. Under Section 80 CCD (1B), you are investing up to Rs 50,000 in NPS. Apart from this, you can also claim your original salary and 10 percent of DA under the NPS contribution of employers. This exemption is available under Section 80 CCD (2B).

Tax deduction on medical insurance premiums under Section 80D can be claimed. The deduction is up to Rs 50,000 per year for senior citizens and Rs 25,000 for non-preventive citizens. Under Section 24 (B), you can claim a deduction of up to Rs 2 lakh on the interest paid on home loans for your housing under the old system.

Under Section 80G, donations to some charitable institutions can be cut by up to 50% or 100%. In addition, under Section 80 EEB, interest can be deducted up to Rs 1,50,000 on interest on loans taken to purchase electric vehicles.

In this way, out of the standard deduction of Rs 14 lakh, Rs 1.5 lakh for 80C, Rs 1.3 lakh for NPS (50000+80000), Rs 75000 for medical insurance, Rs 2 lakh on home loan interest, Rs 85,000 on education loan, Rs 10,000 on interest on savings account, donation of Rs 1 lakh under 80G, Rs 1.5 lakh on EV loan, total discounts are Rs 9 lakh.

In the old tax system, taxpayers were given many cuts and discounts. Such as sections 80C, 80D, HRA etc. All these reduce your taxable income to a great extent. To pay zero tax on income of Rs 20 lakh under the old system, you have to reduce your taxable income of Rs 5 lakh or less. With this, you will be able to avail the complete discount (Rs 12,500) under Section 87A.

Thus, your taxable income has now come down to 5 lakh rupees. The old tax system had zero tax liability on income up to Rs 2.5 lakh. Apart from this, an annual income between Rs 2.5 lakh to Rs 5 lakh is charged 5% income tax, which is Rs 12,500.

The Income Tax Department is exempted under Section 87A. In this way your taxable income becomes zero and you do not have to pay income tax. (Courtesy all photos: Pixabay)