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Tax optimiser: How Jhaveri can make his pay structure tax friendly

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.

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Nov 12, 2018, 06.30 AM IST
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Sudhir Kaushik of Taxspanner.com tells readers how they can optimise their tax by rejigging their income and investments.
By Sudhir Kaushik of Taxspanner.com

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 should be replaced with tax-free perks.

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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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.

(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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