Sudhir Kaushik of Taxspanner.com advises readers on how to restructure their income, investments and expenses to optimise their tax. Here is what he means when he says “stop HRA, save tax”
Sujeet Verma pays almost 10% of his take-home pay in tax because his salary structure is not tax-friendly. Though his company does not allow tinkering with the pay structure, Taxspanner estimates that Verma can reduce his tax by over 50% if the pay structure is tweaked a bit.
Stop HRA, Save Tax
Verma has a very low HRA of Rs 8,000 a month. Though he pays Rs 6,650 a month in rent (Rs 80,000 annually), he is able to claim exemption for only Rs 8,000 in a year. The balance Rs 88,000 received in HRA is taxed. Verma’s employer should increase the HRA to Rs 30,000 (50% of basic) or stop it completely. If he does not get HRA, Verma can claim up to Rs 60,000 as deduction for rent under Sec 80GG. It will cut his tax by Rs 12,360.
Instead of HRA, his company should give him NPS benefit. Up to 10% of the basic salary put in the NPS by employer is deductible under Sec 80CCD(2d). If Rs 72,000 is put in NPS on his behalf, Verma’s tax will be cut by about Rs 14,832. If Verma invests Rs 50,000 more in the NPS under Sec 80CCD(1b), his tax can be cut by another Rs 10,300. Verma should also ask for tax-free perks such as the transport allowance of Rs 1,600 a month and medical allowance of Rs 15,000 a year. It will cut his tax by about Rs 5,000, if he is able to stop HRA, save tax.
INCOME FROM EMPLOYER (All figures are in Rupees)
(As Published in ET Wealth on Feb 27, 2017)
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