How HRA, NPS can help you save tax of Rs 1.9 lakh

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.

WRITE TO US FOR HELP
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.

Pune-based software professional Sudhir Dhawle is earning a high income, but more than 20% of it is going towards taxes because he is not claiming the exemptions and deductions available to him. His pay structure is also not very tax-friendly. TaxSpanner estimates that Dhawle could reduce his tax liability by nearly Rs.1.9 lakh if he claims exemption for HRA, opts for the NPS benefit offered by his company, and restructures his pay to include tax-free perks. Additionally, he should consider investing in NPS on his own and purchasing health insurance for his parents.

As a first step, Dhawle should claim exemption for his HRA. Despite paying a rent of Rs.30,000 per month, he has not been claiming HRA exemption due to lack of awareness about the procedure. According to tax rules for HRA, he can claim an exemption of Rs.1.8 lakh, which would save him about Rs.56,000 in taxes. Next, he should avail the NPS benefit from his company. Under Sec 80CCD(2), up to 10% of the basic salary put into the NPS on behalf of the employee is tax-free. If his company contributes Rs.13,750 (10% of his basic) to NPS on his behalf every month, he could save Rs.51,500 in taxes.

Dhawle should also consider replacing the taxable conveyance allowance in his pay with tax-free allowances. By opting for a telephone allowance of Rs.1,000, newspaper allowance of Rs.1,000, and meal coupons worth Rs.2,200 per month, he could reduce his tax burden by around Rs.16,000. According to Section 17(2), gadgets purchased in the company’s name and provided to the employee for personal use are taxed at only 10% of their value. A gadget allowance of Rs.70,000 would reduce his tax liability by approximately Rs.22,000, while LTA of Rs.60,000 would further reduce his tax by Rs.18,700.

Investing in health insurance for his parents could further reduce his tax liability by Rs.7,800.

WRITE TO US FOR HELP
Paying too much tax? Write to us at etwealth@timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will guide you on how to reduce your tax liability by adjusting your pay and investments.