Tax optimiser How Jhaveri can make his pay structure tax friendly

Gurgaon-based software professional Suneet Jhaveri pays a high tax because his pay structure is not very tax friendly. He is also not able to claim full exemption for certain allowances. “I get an HRA of Rs 4 lakh (Rs 33,333 per month) but only Rs 1.6 lakh is exempt,” he says. Taxspanner estimates that Jhaveri can reduce his tax by nearly Rs 50,000 if he takes a home loan and opts for the NPS benefit offered by his company. Also, some of the taxable allowances in his salary

Jhaveri should start by asking that the transport and medical allowances in his salary, which are now taxable, should be replaced with a newspaper allowance. He should also ask for a higher telephone allowance. This rejig will cut his tax by about Rs 9,400.

Jhaveri already invests in the NPS and claims deduction under Sec 80CCD(1b). He can save more tax by opting for the NPS benefit offered by his company. Under Sec 80CCD(2d), up to 10% of the basic salary put in scheme is deductible. If Jhaveri’s company puts Rs 80,000 (Rs 6,666 per month) in the scheme on his behalf, his annual tax will be cut by about Rs 25,000. Jhaveri is only 31, so he should allocate the maximum 75% of the corpus to equity funds.

If Jhaveri takes a home loan, up to Rs 2 lakh interest paid on the loan can be claimed as a deduction. His HRA will be fully taxable, but the home loan deduction under Sec 24 will cut his tax by about Rs 12,500.

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