Tax-saving tips: HRA tax-free after rent to parent; how to reduce tax outgo by Rs 83,264

Kolkata-based marketing professional Sourav Gupta earns well, but pays a high tax because his salary structure is not very tax-friendly and he doesn’t claim all the deductions available to him. TaxSpanner estimates that Gupta can reduce his tax by more than Rs.83,000 if he claims HRA exemption by paying rent to his father, if his company offers him the NPS benefit, and he invests more in the scheme on his own. He also needs to buy health insurance for his family and senior citizen parents.

Gupta lives with his parents in their house and, therefore, does not claim exemption for HRA. If he pays Rs.25,000 rent to his father every month, the entire Rs.2.39 lakh HRA in his salary package can be tax-free, bringing down his tax by almost Rs.50,000. The Rs.3 lakh rent received by his father will be taxed after 30% standard deduction, but since his father has no other income, there will be no tax.

Next, Gupta should ask his company for the NPS benefit. Under Section 80CCD(2), up to 10% of the basic put in the NPS is tax-free. If his company puts Rs.3,315 (10% of his basic pay) in the NPS every month, his annual tax will reduce by about Rs.8,000. Another Rs.10,400 can be saved if he invests Rs.50,000 in the NPS on his own. The tax saving should be used to buy medical insurance for his family and his senior citizen parents. A premium of Rs.40,000 will cut his tax by roughly Rs.8,300

Gupta should also ask his company to rejig the salary structure by including some tax-free perks. Newspaper allowance of Rs.9,000 (Rs.750 per month) and food coupons worth Rs.22,000 (Rs.1,833 per month) will reduce his tax by around Rs.6,500.

In 2023-24, Gupta opted for the new tax regime. He should stay with the old tax regime since his tax will be lower.

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Sourav Gupta, a marketing professional based in Kolkata, earns a good salary but ends up paying a high amount of tax due to his tax-unfriendly salary structure and not claiming all available deductions. TaxSpanner suggests that Gupta could potentially save over Rs.83,000 in taxes by claiming HRA exemption by paying rent to his father, utilizing the NPS benefit from his company, and investing more in the scheme himself. Additionally, he should consider purchasing health insurance for his family and senior citizen parents.

Gupta currently lives with his parents and therefore does not claim HRA exemption. By paying a monthly rent of Rs.25,000 to his father, he can make the entire Rs.2.39 lakh HRA in his salary tax-free, resulting in a tax reduction of almost Rs.50,000. Although the Rs.3 lakh rent received by his father will be taxed after a 30% standard deduction, there will be no tax as his father has no other income.

Furthermore, Gupta should explore the NPS benefit offered by his company. By utilizing Section 80CCD(2), up to 10% of his basic pay put into the NPS is tax-free. If his company contributes Rs.3,315 (10% of his basic pay) monthly to the NPS, his annual tax could reduce by approximately Rs.8,000. Additionally, investing Rs.50,000 in the NPS on his own could save him another Rs.10,400 in taxes. He can use these tax savings to purchase medical insurance for his family and senior citizen parents, with a premium of Rs.40,000 potentially reducing his tax by around Rs.8,300.

Gupta should also consider requesting his company to restructure his salary to include tax-free perks such as a newspaper allowance of Rs.9,000 and food coupons worth Rs.22,000, which could reduce his tax by about Rs.6,500.

Although Gupta had opted for the new tax regime in 2023-24, it might be more beneficial for him to stick with the old tax regime as his tax liability would be lower.

WRITE TO US FOR HELP
If you’re paying too much tax, reach out to us at etwealth@timesgroup.com with ‘Optimise my tax’ as the subject. Our experts can guide you on how to reduce your tax burden through adjustments in your pay structure and investments.