Noida-based software professional Vijay Sharma pays a high tax because he does not claim all the tax deductions available to him. Taxspanner estimates that Sharma can reduce his tax by more than Rs 82,000 if he opts for a home loan, invests in the NPS and his company rejigs his salary structure by replacing some of the taxable allowances with taxfree perks.
Income from employer
Income from other sources
Sharma lives in his parents’ house and does not claim HRA exemption. He plans to buy a house this year. If he takes a home loan, he will be able to reduce his tax substantially. A deduction of Rs 2 lakh will cut his tax by roughly Rs 50,000. He should opt 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 3,550 (10% of his basic pay) in the NPS every month, his annual tax will reduce by about Rs 9,000. Another Rs 10,400 can be saved if he invests Rs 50,000 in the scheme on his own under Sec 80CCD(1b). At 31, Sharma should put the maximum in equity funds.
Tax saving investments
Sharma should also ask his company to replace the taxable conveyance and medical allowances with tax-free perks like telephone allowance, furnishings, gadget allowance and newspaper allowance. If he gets a telephone allowance of Rs 18,000 (Rs 1,500 per month), newspaper allowance of Rs 12,000 (Rs 1,000 per month) and gadget allowance of Rs 25,000 (Rs 2,083 per month)per year, his annual tax will reduce by around Rs 11,500.
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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.