Pune-based IT professional Atul Kumar pays a high tax because he is not able to claim some of the exemptions and deductions available to him. Taxspanner estimates that Kumar can save over Rs 80,000 in tax if his salary structure is altered to include some tax free perks and he invests in NPS.
Income from employer
Kumar should start by asking for an allowance for gadgets and household items instead of the Rs 72,000 he gets as LTA. Given the Covid-induced restrictions on travel, he will not be able to claim exemption for LTA. If he gets Rs 60,000 under this head, his tax will reduce by almost Rs 19,000.
Income from other sources
Next, he should ask for other perks such as newspaper allowance and food coupons. He should also ask for a higher telephone allowance as work from home has pushed up his internet bill. If he gets food coupons worth `22,000, newspaper allowance of Rs 6,000 and a higher telephone allowance, his tax will reduce by almost Rs 11,000.
Kumar should also opt for the NPS benefit his company offers. Up to 10% of the basic salary invested in the pension scheme is tax free under Section 80CCD(2). If his company puts Rs 8,266 (10% of his basic salary) is put in NPS every month, his annual tax will reduce by almost Rs 31,000. Another Rs 15,600 can be saved if he invests Rs 50,000 in the scheme on his own under Sec 80CCD(1b). At 35, Kumar should allocate the maximum to equity funds of the NPS. Kumar should also buy medical insurance for himself and his family. A premium of Rs 25,000 can save another Rs 7,800 in tax.
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