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The medical allowance, which is now taxable, should be scrapped and replaced with a magazine and newspaper reimbursement.
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Hyderabad-based IT professional Vinod Gupta pays a high tax but there is very little scope for reduction. Taxspanner estimates that Gupta can reduce his tax by over Rs 50,000 if some of the taxable allowances in his salary are replaced with tax free perks and he starts investing in the NPS.
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Gupta should start by asking his company to hike his telephone reimbursement by Rs 6,000. The medical allowance, which is now taxable, should be scrapped and replaced with a magazine and newspaper reimbursement. These two changes will reduce his annual tax by about Rs 7,500. Next, Gupta should ask his company for the NPS benefit. Under Sec 80CCD(2d), up to 10% of the basic salary put in government managed pension scheme is deductible.
If Gupta’s company puts Rs 82,173 (10% of his basic salary) in the scheme, his tax will reduce by about Rs 25,600. Another Rs 15,600 can be saved if he invests Rs 50,000 in the NPS on his own under Sec 80CCD(1b). While the tax savings are substantial, the investments in NPS would reduce Gupta’s monthly takehome pay by about Rs 8,000. Gupta is already investing in ELSS funds so he is aware of the risks of investing in equities.
He should opt for the Aggressive Lifecycle Fund that puts the maximum 75% in equity funds. A small amount can be saved by shifting from fixed deposits to debt mutual funds.
INCOME FROM EMPLOYER
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(As published on The Economics Times Wealth, July 23, 2018)
