How home loan, NPS can help cut salaried Agarwal’s tax outgo

Ashish Agrawal pays a high tax because his salary structure is not very tax friendly. His employer also does not allow any changes in the structure. TaxSpanner estimates that Agrawal’s tax can be cut by almost 33% if his company makes small tweaks in the salary and he claims tax benefits on his home loan.

Agrawal should ask his company to reduce his special allowance by Rs 59,878 and put that amount in the NPS under Section 80CCD(2d). This will reduce his tax by Rs 18,450. Next, he should invest Rs 50,000 in the NPS under Sec 80CCD(1b). This will cut his tax further by Rs 15,450. He should go for the auto-choice option that allows up to 75% exposure to equity funds. Save tax beyond 80C, Optimize Tax Now!

Agrawalbs big tax cut will come from his home loan. He lives in rented accommodation but has taken a home loan for a house in his native place where his parents live. He will soon get possession of the house. If he gives his house on rent to his parents, he can claim deduction for the interest he pays on the home loan. Though the rent will be taxed (after 30% standard deduction), the entire interest paid on the home loan can be claimed as a deduction. This will save him Rs 40,000 in tax.

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(As Published in ET Wealth on Jan 9, 2017)

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