Bengaluru-based Gupta can cut tax by changing salary structure, investing more under Sec 80C

Bengaluru-based Rishi Gupta’s tax is more than 7% of his annual income due to a combination of tax-inefficient income and poor tax planning. Taxspanner estimates that Gupta can reduce his tax by almost Rs 50,000 by minor changes in the salary structure and additional investments.

As a first step, Gupta should ask his employer to reduce his special allowance and instead give him certain perks that are tax-free on submission of actual bills. If he gets conveyance, newspaper and telephone bills worth Rs 78,000 reimbursed, his tax is reduced by Rs 16,000. Next, he should ask for 10% of his basic pay to be put in the NPS. If Rs 36,000 is put the NPS, his tax will come down by almost Rs 7,300.

Gupta does not avail of the full Rs 1.5 lakh deduction available under Section 80C. He should start a SIP in an ELSS fund and open a PPF account. An investment of Rs 82,000 in these two options will reduce his tax by roughly Rs 17,000. The tax outgo can be reduced further by investing Rs 50,000 in the NPS under Sec 80CCD(1b). This will reduce his tax by Rs 10,300. However, NPS will lock up his money till he turns 60.

(By Sudhir Kaushik of Taxspanner.com)