Pune-based software professional Vinay Makhija pays a low tax even though his salary structure is not tax-friendly and he doesn’t claim all the deductions available to him. TaxSpanner estimates that Makhija can reduce his tax to zero if he opts for the NPS benefit offered by his company and also invests in the scheme on his own.

Makhija’s taxable income before deductions is Rs.11.39 lakh. If the net income (after all deductions and exemptions) is reduced to less than Rs.5 lakh, he can claim full tax relief under Section 87A. Makhija pays rent and claims HRA exemption for Rs.2.84 lakh. He also invests the maximum Rs.1.5 lakh under Section 80C. With the standard deduction of Rs.50,000, this brings down his net taxable income to a little over Rs.7 lakh.

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He can bring it down further by opting for the NPS benefit offered by his company. Under Section 80CCD(2), up to 10% of the basic put in NPS is tax-free. If his company puts Rs.5,016 (10% of his basic pay) in the NPS every month, his taxable income will reduce by Rs.60,200. It can reduce by another Rs.50,000 if he invests in the scheme on his own under Section 80CCD(1b). At 27, Makhija should put the maximum 75% in equity funds.

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Next, he should ask his company for some basic tax-free perks, such as reimbursement of fuel or conveyance expenses, newspaper allowance and food coupons. If he gets Rs.24,000 (Rs.2,000 a month) for conveyance, newspaper allowance of Rs.9,000 (Rs.750 a month) and food coupons worth Rs.22,000 per year, his taxable income will reduce by Rs.55,000.

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If Makhija buys medical insurance for himself and his parents, his net taxable income will fall below Rs.5 lakh, thus making it fully tax-free.

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Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.



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