Pranav Dwivedi's salary structure is not very tax-friendly. His salary includes many allowances which are fully taxable in his hands and leads to higher tax outgo. ET Wealth tells readers how they can optimise their tax by rejigging their income and investments.
Getty ImagesUp to Rs 2 lakh interest paid on a home loan can be claimed as a deduction.
By Sudhir Kaushik of Taxspanner.com
Jamshedpur-based engineer Pranav Dwivedi pays a high tax because his salary structure is not very tax-friendly and he is not able to claim some of the deductions. Dwivedi lives in a company-provided accommodation so his HRA is fully taxable.
Adding to his problem are the taxable perks such as the transport and medical allowances. Taxspanner estimates that Dwivedi can reduce his tax by over Rs 66,000 if he takes a home loan to buy a house, some of the taxable allowances in his pay structure are replaced with tax-free allowances and he gets the NPS benefit from his company.
Dwivedi should start by asking his company to replace the conveyance and medical allowances in his salary with some tax-free reimbursements such as telephone allowance, newspaper bills and meal coupons. These perks are tax free against submission of bills and actual usage. If he gets Rs 1,000 for telephone, Rs 500 for newspapers and Rs 1,833 worth of meal coupons every month, his annual tax will reduce by around Rs 8,300.
Income from employer
Next, he should ask his company for the NPS benefit under Section 80CCD(2). Up to 10% of the basic salary put in NPS is tax free. If his company puts Rs 3,840 (10% of his basic) in the NPS every month, it will reduce his tax by Rs 9,600.
Tax-saving investments and other deductions
Pranav Dwivedi’s tax
His big tax break will come if he buys a house with a home loan. Up to Rs 2 lakh of interest paid on a home loan can be claimed as a deduction. If he claims deduction for Rs 2 lakh, his tax will reduce by Rs 41,000. Dwivedi and his wife have group health cover. He bought health cover for his mother. If he also gets his father insured, his tax will reduce by Rs 5,200.
Write to us for help Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.
( Originally published on Aug 03, 2020 )
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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