Tax savings tips: NPS, new tax regime can save nearly Rs 1 lakh tax for this Hyderabad professional Under Section 80CCD(2), up to 14% of the employees basic salary put in the pension scheme is tax-free. This limit is lower at 10% of the basic salary for those who opt for the old tax regime. Sudhir Kaushik of TaxSpanner.com tells readers how they can optimise their tax by rejigging their incomes and investments
Sudhir Kaushik
CEO and Founder, Taxspanner.com
Hyderabad-based marketing professional Chirag Kumar pays a high tax because his salary structure is not tax-friendly and he doesn’t avail of the tax exemption for house rent allowance (HRA). TaxSpanner estimates that Kumar can save nearly Rs.1 lakh if his company offers him some tax-free allowances and the NPS benefit. He should also shift to the new tax regime.
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Kumar should start by asking his company to replace the taxable travel allowance with tax-free perks. There is no need for paperwork because employee benefit solutions such as Zaggle Save can manage these perks digitally. A communication reimbursement of Rs.18,000 (Rs.1,500 per month), a newspaper allowance of Rs.12,000 (Rs.1,000 per month), and food coupons worth Rs.26,400 (Rs.2,200 per month) will reduce Kumar’s tax outgo by roughly Rs.14,500.
Though he lives in a rented house, Kumar doesn’t claim tax exemption for HRA because the rent is paid in cash without a receipt. This makes the Rs.4.23 lakh HRA fully taxable. He should therefore shift to the new tax regime where there are very few deductions and exemptions, but also higher basic exemption and standard deduction. Shifting to the new regime will help him save Rs.37,000 in tax.
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Big tax savings are possible if his company offers Kumar the NPS benefit. Under Section 80CCD(2), up to 14% of the employee’s basic salary put in the pension scheme is tax-free. This limit is lower at 10% of the basic salary for those who opt for the old tax regime. If his company puts Rs.12,323 (14% of his basic salary) in the NPS on his behalf every month, his annual tax will reduce by about Rs.46,000.
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.
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This story originally appeared on: India Times - Author:Faqs of Insurances
