Aaryan Khanna, 26, has just started working and is totally clueless about tax matters. Though his salary structure is very tax-friendly, his company has already deducted a lot of tax because Khanna has not made any investments under Section 80C other than the mandatory contribution to the Provident Fund and a life insurance policy that his father made him buy.
Taxspanner estimates that if Khanna saves more, he will be able to reduce his tax outgo by almost 90%. Khanna is young and ELSS (tax-saving) funds are the best tax saving option for him. He should invest Rs 60,000 in tax-saving mutual funds. This will reduce his tax by roughly Rs 12,500.
Next, he should open a PPF account and put Rs 38,500 in it. This will save him Rs 8,000 in tax. The big tax cut will come from HRA exemption. Khanna lives with his parents in their house. If they are in the lower tax bracket, he should pay them rent and claim HRA exemption. Though the rent will be taxed (after 30% standard deduction), his HRA of Rs 1.62 lakh will be tax free, thus saving him about Rs 24,000 in tax. Medical insurance for himself and his parents can save another Rs 1,000. Save tax beyond 80C, Optimize Tax Now!
INCOME FROM EMPLOYER
Actions to take
* No changes required in the salary structure.
* Avoid FDs and invest in debt funds to defer tax.
(As Published in ET Wealth on Feb 06, 2017)