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Tax optimiser: NPS, LTA claim can help salaried Gupta cut tax by Rs 4 lakh

Sudhir Kaushik of Taxspanner.com

Mumbai-based Sanjeev Gupta earns a handsome salary but more than 25% of it goes in tax because he doesn’t claim all exemptions and there is a 10% surcharge on incomes above Rs 50 lakh.

Taxspanner estimates that Gupta can reduce his tax by over Rs 4 lakh if he utilises his LTA, his company offers him the NPS benefit and he rents a costlier home.

Income from employer

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Income from other sources

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Gupta is unable to claim exemption for the Rs 3.09 lakh he receives as LTA. If he uses it to travels with family, LTA is tax free once in a block of two years. This will reduce his tax by Rs 1.06 lakh. Next, he should ask his company to introduce the NPS benefit. Under Sec 80CCD(2), up to 10% of the basic salary put in the scheme is tax free. If Gupta’s company puts Rs 23,203 (10% of his basic) in the scheme every month, his annual tax will reduce by about Rs 95,000.

Tax-saving investments

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Other deductions

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A big tax cut will come his way if Gupta shifts to a costlier home. He gets Rs 13.92 lakh as HRA but barely Rs 2 lakh is exempt from tax. HRA exemption is least of the following: 50% basic salary; or rent paid minus 10% basic; or HRA received. Gupta pays a monthly rent of Rs 40,000 (Rs 4.8 lakh per year) and the second option (rent paid minus 10% basic salary) is the exemption.

Sanjeev Gupta’s tax

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If he moves to a bigger house with a rent of Rs 50,000 a month (Rs 6 lakh a year), the exemption will be higher at Rs 3.2 lakh. This will bring down his taxable income below the Rs 50 lakh threshold, thus saving him roughly Rs 1.5 lakh in tax surcharge.

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.
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