Pune-based software professional Sudhir Dhawle has a high income, but more than 20% of it goes in tax because he doesn’t claim exemptions and deduction available to him. His pay structure is also not very tax-friendly. TaxSpanner estimates that Dhawle’s tax can be reduced by nearly Rs.1.9 lakh if he claims exemption for HRA, opts for the NPS benefit offered by his company and his pay structure is rejigged to include some tax-free perks. He should also invest in NPS on his own and buy health insurance for his parents.
As a first step, Dhawle should claim exemption for his HRA. Although he pays a rent of Rs.30,000 per month, he does not claim HRA exemption because he is not aware of the procedure. As per tax rules for HRA, he can claim an exemption of Rs.1.8 lakh, which will save him about Rs.56,000 in tax.Next, he should opt for the NPS benefit from his company. Under Sec 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free. If his company puts Rs.13,750 (10% of his basic) in NPS on his behalf every month, he will save Rs.51,500 in tax.
Dhawle should also get the taxable conveyance allowance in his pay replaced with some tax-free allowances. Telephone allowance of Rs.1,000, newspaper allowance of Rs.1,000 and meal coupons worth Rs.2,200 per month will reduce his tax by around Rs.16,000. Under Section 17(2), gadgets bought in company’s name and given to the employee for personal use are taxed at only 10% of their value. Gadget allowance of Rs.70,000 will cut his tax by about Rs.22,000 and LTA of Rs.60,000 will cut tax by Rs.18,700.
Health insurance for parents can cut his tax by another Rs.7,800.
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