Tax optimiser: Garg should replace LTA with gadget allowance to save Rs 75,000 in tax

By Sudhir Kaushik of Taxspanner.com

Gurugram-based finance professional Sahil Garg pays a high tax because his pay structure is not tax friendly and he doesn’t claim some of the deductions available to him. Taxspanner estimates that Garg can save more than Rs 75,000 in tax if his salary structure is tweaked and he invests in NPS.

Income from employer

Garg gets Rs 40,000 per year as LTA but has opted to receive that as taxable income every month. “I will not be able to travel and claim exemption due to lockdown restrictions,” he says. He should ask his company to replace LTA with an allowance for buying consumer electronics. If he gets Rs 50,000 under this head, his tax will reduce by Rs 15,600. He should also ask for reimbursement of bills for newspapers, magazines and telephone expenses. If he gets Rs 18,000 for these, his tax will reduce by Rs 5,600.


Income from other sources

The big savings will come from NPS investments. Garg’s company offers him the NPS benefit but he hasn’t opted for it. Under Section 80CCD(2), up to 10% of the basic salary invested in the pension scheme is tax free. If he opts for it and Rs 7,093 (10% of his basic salary) is put in NPS every month, his annual tax will reduce by almost Rs 27,000. Another Rs 15,600 can be saved if he invests Rs 50,000 in the scheme on his own under Sec 80CCD(1b). At 27, he should opt for and aggressive allocation that puts 75% of the corpus in equity the balance in bond funds.

Tax-saving investments

Garg should also opt for a higher amount for food coupons. Right now he gets Rs 1,100 per month. If this is raised to Rs 2,200 per month, his tax will reduce by over Rs 4,000. Medical insurance can save another Rs 7,800.

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