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Hike EPF contribution to reduce your tax outgo

Hike EPF contribution to reduce your tax outgo


Pune-based software professional Manish Taneja has a high salary, but a big chunk goes in tax because the pay structure is not very tax-friendly. Though he claims most of the available tax deductions, there is scope for tax optimisation. TaxSpanner estimates that Taneja can save nearly Rs.74,000 in tax if he opts for a higher contribution to the Provident Fund and his salary structure includes a few tax-free perks.

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Taneja has opted for the minimum contribution of Rs.1,800 per month (Rs.21,600 per year) to the Provident Fund. If he increases this to 12% of his basic salary, his employer will also increase the contribution to Rs.1.65 lakh per year and, accordingly, reduce the taxable special allowance. This will cut Taneja’s take-home pay, but will save him almost Rs.45,000 in tax.

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Next, he should ask for some more tax-free perks, such as gadget allowance and reimbursement of newspaper expenses. Under Section 17(2), gadgets bought for personal use are taxed at only 10% of the value. This deduction came into focus during the work-fromhome arrangement induced by Covid. If Taneja buys gadgets and appliances worth Rs.60,000 in a year, his tax will be reduced by about Rs.17,000. If he gets books and newspaper allowance of Rs.12,000 (Rs.1,000 per month), his tax will come down by Rs.3,750.

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Taneja and his family are covered by group health insurance offered by his company. However, he should buy health insurance separately as well. A premium of Rs.25,000 will give the family a cover of almost Rs.10 lakh. This will also reduce his tax outgo by Rs.7,800.

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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