Tax planning: Use your perks, NPS cut tax by Rs 1.4 lakh

Hyderabad-based IT professional Rishabh Desai earns well, but pays a high tax even though he avails of all the tax benefits available to him. Taxspanner estimates that Desai can reduce his tax by almost Rs.1.4 lakh if he gets some tax-free perks and his company offers him the NPS benefit. The NPS benefit alone can shave off almost Rs.40,000 from his tax liability. Under Sec 80CCD(2), up to 10% of the basic salary put in NPS is tax free. If Desai’s company puts Rs.10,633 (10% of his basic pay) in the NPS every month, his tax will be reduced by Rs.39,800. Desai already invests in the scheme under Section 80CCD(1b), so he knows how the scheme works and the allocation he should follow.

Next, Desai should ask his company for some basic tax free perks, such as newspaper bill reimbursements and meal coupons. If he gets Rs.24,000 worth of meal coupons and a newspaper allowance of Rs.2,000 per month, his annual tax will reduce by Rs.15,000. Big savings will come if his company also offers him a gadget allowance. Under Section 17(2), gadgets and appliances bought in the name of the company and given to the employee for personal use are taxed at only 10% of the value. If Desai gets Rs.2.4 lakh a year (Rs.20,000 per month), his tax will come down by around Rs.75,000.Desai also needs to review his investments. Early withdrawals from debt funds have led to short-term capital gains which are taxed at the slab rate. He should remain invested for longer periods to reduce the 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.

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