Tax optimiser: IT professional Sonawane can cut tax outgo to zero via NPS, perks
Taxspanner estimates that Sonawane can reduce his tax to zero if he gets a few tax-free perks, he opts for the NPS benefit offered by his company and also invests in the scheme on his own.
By ET CONTRIBUTORS |
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Sonawane has group medical cover from his company. But he should also buy medical insurance on his own.
By Sudhir Kaushik of Taxspanner.com
Pune-based IT professional Kartik Sonawane pays a low tax even though he does not claim all the tax deductions available to him. Taxspanner estimates that Sonawane can reduce his tax to zero if he gets a few tax-free perks, he opts for the NPS benefit offered by his company and also invests in the scheme on his own. His net taxable income is Rs 6.72 lakh. If he can reduce this to less than Rs 5 lakh, he will be eligible for total tax relief under Sec 87A.
Sonawane should start by opting for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic put in NPS is tax-free. If his company puts Rs 4,875 (10% of his basic pay) in the NPS every month, his taxable income will reduce by Rs 58,490. It can reduce by another Rs 50,000 if he invests in the scheme on his own under Sec 80CCD(1b). At 29, Sonawane should put the maximum in equity funds.
Income from employer Next, he should ask his company to reduce his special allowance and give him some tax-free perks instead. Right now, the only tax-free emolument in his pay is a paltry telephone allowance of Rs 500 per month. If he gets a conveyance allowance of Rs 24,000, a newspaper allowance of Rs 9,000 and food coupons worth Rs 22,000 per year, his taxable income will reduce by Rs 55,000. Kartik Sonawane’s tax Sonawane has group medical cover from his company. But he should also buy medical insurance on his own. A cover of Rs 10 lakh will cost roughly Rs 22,500 and reduce his taxable income to below Rs 5 lakh, thus making it fully tax free.
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