Tax optimiser: NPS, rent to father can help Kumar save Rs 1 lakh tax

Delhi-based finance professional Ranjan Kumar pays a moderate tax but he can reduce it significantly with a few adjustments. Taxspanner estimates that Kumar can save nearly Rs.1 lakh in tax if he claims exemption for HRA, his salary structure is rejigged to include some tax free perks and his company offers him the NPS benefit. He also needs to buy health cover for his parents. Kumar doesn’t claim HRA exemption because he lives in this parents’ house. If he pays a rent of Rs.25,000 per month to his father, his HRA will be exempt up to Rs.2.35 lakh, resulting in in a tax saving of Rs.50,000. However, his retiree father will be taxed for the Rs.3 lakh he receives as rent after a 30% standard deduction.

Kumar should also ask his company for the NPS benefit. Under Sec 80CCD(2), up to 10% of the basic salary put in NPS is tax-free. If his company puts Rs.5,375 (10% of his basic pay) in NPS every month, his tax will reduce by around Rs.14,000. Another Rs.10,400 can be saved if he invests Rs.50,000 in NPS on his own. Given that he also works from home, Kumar should ask his company for a higher telephone allowance. He should also ask for some common taxfree perks such as meal coupons and LTA. If he gets Rs.22,500 worth of meal coupons, a newspaper allowance of Rs.1,000 per month and LTA of Rs.50,000, his annual tax will reduce by roughly Rs.18,000.


Kumar should also buy a health cover for his parents. A health insurance premium of Rs.25,000 per year will save him around Rs.5,200 in tax.


Paying too much tax? Write to us at etwealth@ with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.

Source link

Spread the word!

Leave a Comment

Your email address will not be published. Required fields are marked *