Kumar and her husband are planning to buy a house with a home loan. If they take a joint loan, both can claim deduction separately. If Kumar claims a deduction of Rs.1.5 lakh, her tax will reduce by around Rs.47,000. After she stops paying rent, the HRA will be taxable, so her net tax savings will be about Rs.32,000. Next, she should ask her employer for the NPS benefit. Under Section 80CCD(2), up to 10% of the basic pay put in the NPS on behalf of the employee is tax-free. If her company puts Rs.5,818 (10% of her basic pay) in the NPS on her behalf every month, she will save about Rs.14,500. Another Rs.10,400 can be saved under Section 80CCD(1b) if she invests Rs.50,000 in the NPS on her own.
Kumar pays a high tax on interest from NSCs and bank deposits. She should avoid these tax-inefficient avenues and go for the NPS and PPF instead. Though her company does not allow rejigging of pay structure, Kumar should ask for some basic allowances, such as reimbursement of telephone and newspaper bills, fuel expenses and LTA. If, every month, she is reimbursed Rs.2,500 for fuel expenses, Rs.500 for telephone bills and Rs.500 for newspapers, her annual tax will reduce by around Rs.13,000. LTA of Rs.60,000 will shave off about Rs.19,000 from the tax liability.
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