Bengaluru-based IT professional Akshay Kumar earns well but more than 18% of it goes into tax because his salary is not very tax-friendly and he is unable to claim all the deductions available to him. The Taxspanner estimates that Kumar can save up to Rs.2.27 lakh in tax if his salary structure is rejigged, he opts for the NPS benefit offered by his company, and he invests in the pension scheme on his own as well. But his biggest tax saving will come from claiming HRA exemption.
Kumar lives with his parents in his grandfather’s house. “Since I am not paying rent, I can’t claim HRA exemption,” he says. If he pays a rent of Rs.43,000 per month to his grandfather, his entire HRA can be tax free. This will result in a tax saving of Rs.1.34 lakh. But his grandfather will be taxed for the Rs.5.16 lakh he receives as rent after a 30% standard deduction. Next, he should opt for the NPS benefit. Under Sec 80CCD(2), up to 10% of the basic salary put in NPS is taxfree. If his company puts Rs.7,169 (10% of his basic pay) in NPS every month, his tax will reduce by around Rs.27,000. Another Rs.15,600 can be saved if he invests Rs.50,000 in NPS on his own.
Kumar should also ask his company for some common tax-free perks such as meal coupons, LTA and a gadget allowance to compensate for the expenses incurred on the work from home arrangement. If he gets Rs.22,000 worth of meal coupons, LTA of Rs.60,000 and Rs.60,000 for gadgets, his annual tax will reduce by Rs.42,500. Kumar should also buy a health cover for his parents which can save him around Rs.7,000 in tax.
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