TaxSpanner estimates that Rao can reduce her tax by Rs.1.8 lakh if she claims exemption for HRA, her company offers her the NPS benefit and her pay structure includes some tax-free perks

Rent to parent, NPS could save Bengaluru finance professional up to Rs 1.8 lakh tax Sudhir Kaushik of TaxSpanner.com tells readers how they can optimise their tax by rejigging their incomes and investments

Bengaluru-based finance professional Niharika Rao earns well, but also pays a high tax because her salary structure is not tax-friendly and she doesn’t avail of all the deductions available to her. TaxSpanner estimates that Rao can reduce her tax by Rs.1.8 lakh if she claims exemption for HRA, her company offers her the NPS benefit and her pay structure includes some tax-free perks. She also needs to invest in the NPS on her own and buy health insurance for her parents.

Rao lives with her parents and, therefore, doesn’t claim HRA exemption. If she pays a monthly rent of Rs.38,000 to her father, the entire Rs.3.76 lakh HRA in her salary can be tax-free. This will reduce her tax by a mammoth Rs.1.18 lakh, but her father will be taxed for the Rs.4.56 lakh he receives as rent after 30% standard deduction.

Next, Rao should ask her company for the NPS benefit. Under Section 80CCD(2), up to 10% of the employee’s basic salary put in the pension scheme is tax-free. If her company puts Rs.6,270 (10% of her basic salary) in the NPS on her behalf every month, her annual tax will reduce by about Rs.23,500. Another Rs.15,600 will be saved in tax if she invests Rs.50,000 in the pension scheme on her own under Section 80CCD(1B).

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Rao’s salary has some taxable components, such as medical and conveyance allowances. These should be replaced with some tax-free perks. Newspaper allowance of Rs.12,000 (Rs.1,000 per month) will save her Rs.3,750 in tax. Rao relies on the group health insurance from her employer. She needs to buy a health cover separately. A premium of Rs.50,000 for health insurance for herself and her parents will cut her tax by Rs.15,600.

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.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances