Tax optimiser: Kumar can reduce tax by up to Rs 1.4 lakh by paying rent to mom, tax free perks, NPS

By Sudhir Kaushik of Taxspanner.com

Gurgaon-based IT professional Hemant Kumar earns a decent salary, but almost 12% of it goes into tax. Taxspanner estimates that Kumar can save almost Rs 1.4 lakh in tax if he pays rent to his mother and claims exemption for HRA, some taxable components in his salary are replaced by tax-free perks and he opts for the NPS benefit offered by his company.

Kumar is allowed by his company to rejig his compensation package, but he has kept the HRA component very low at Rs 8,000. Kumar should get his HRA hiked to 50% of the basic pay and pay a higher rent to his mother. His mother does not have any other income so even rent of Rs 45,000 per month (Rs 5.4 lakh per year) will not put any tax liability on her. Rental income is taxed after a 30% standard deduction, so her taxable income will be only Rs 3.78 lakh. If his HRA is exempt, Kumar will straightaway save Rs 93,300 in tax.


Income from employer

Next, he should opt for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic salary put in NPS is tax-free. If his company puts Rs 6,585 (10% of his basic pay) in the NPS every month, his annual tax will be cut by almost Rs 25,000. Another Rs 10,400 can be saved if he invests Rs 50,000 in the NPS on his own.

Kumar should also ask his company to replace the transport and medical allowances with tax-free perks. If he buys gadgets worth Rs 40,000 and newspapers for Rs 6,000 and gets meal coupons worth Rs 22,000 in a year, his tax will reduce by around Rs 14,000.

More tax can be saved by buying health insurance for his parents.

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