Tax optimiser: Verma shouldn’t take a home loan just to save tax

Pune-based HR manager Deepak Verma pays a high tax even though he claims all the deductions available to him. Taxspanner estimates that Verma can reduce his tax marginally by around Rs.22,000 if some of the emoluments in his pay structure are replaced with tax-free components.

Verma suffers from a disability and is therefore eligible for a deduction under Sec 80U. But due to disability, he is unable to travel and claim exemption for his LTA. He should ask his company to replace the LTA with a gadget allowance under Section 17(2). Gadgets and other items such as furniture can be bought in the name of the company and given to the employee for personal use.

This had assumed significance during the work from home phase after covid. The employee is taxed for 10% of the value of such assets provided by the company for personal use. If Verma gets Rs.60,000 a year (Rs.5,000 per month), his annual tax will reduce by around Rs.17,000. Next, he should ask his company for some basic tax-free components such as a newspaper allowance. If he gets Rs.1,000 per month for newspaper and periodicals, his annual tax will reduce by around Rs.3,750.


There is little scope for reducing tax further. Verma already invests in the NPS and has also opted for the NPS benefit offered by his company. He also gets meal coupons and tax-free conveyance allowance due to his disability. The only way Verma can reduce tax further is by purchasing a second house with a home loan. If he pays an interest of Rs.2 lakh on the loan, his tax will reduce by Rs.62,400. But buying a home is a major financial decision and tax saving alone should not be the deciding factor.



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.

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