How salary perks, NPS can save Rs 1 lakh in income tax

Mysuru-based testing engineer Mano Gowda earns well, but also pays a high tax because his pay structure is not very tax-friendly and he does not avail of all the deductions available to him. TaxSpanner estimates that Gowda can save nearly Rs.1 lakh in tax if his salary structure is rejigged to include tax-free perks and if he opts for the NPS benefit offered by his company.

One reason for high tax is the low exemption for the HRA component in his salary. He pays a rent of Rs.1.8 lakh in a year. HRA exemption is the lowest of the following: actual HRA received, 50% of basic salary, and rent paid, less 10% of basic salary. Since his basic salary is relatively high (Rs.11.4 lakh), the HRA exemption is reduced to Rs.66,000.

Gowda can reduce his tax by opting for the NPS benefit offered by his company. Up to 10% of the basic salary put in the NPS on behalf of the employee is deductible under Section 80CCD(2). If his company puts Rs.9,500 (10% of his basic) in the NPS on his behalf every month, his tax will reduce by almost Rs.36,000. At 36, Gowda should put the maximum 75% of the corpus in equity funds.

He should also ask for some tax-free perks, such as reimbursement of newspaper expenses, meal coupons, leave travel assistance and gadget allowance. If he gets books and newspaper allowance of Rs.1,500 and meal coupons of Rs.2,000 per month, his tax will come down by about Rs.13,000.

Under Section 17(2), gadgets bought for personal use are taxed at only 10% of the value. Gadget allowance of Rs.60,000 will cut tax by about Rs.18,000, while LTA of Rs.1 lakh will reduce his tax by Rs.31,200.

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