Tax optimizer: How salaried Ranjan's tax went up due to change in home loan rule

Mumbai-based P. Ranjan is a senior manager in a large company. His salary is high, but almost 22% of his total income goes in tax. Till last year, the tax was lower because of the home loan for a house he has given on rent.

The entire Rs 4.6 lakh interest could be set off against the rent and salary income. From this year, the deduction against salary is capped at Rs 2 lakh.

Though this has pushed up Ranjan’s tax liability, Taxspanner estimates that he can save over Rs 98,000 in tax if his pay structure is rejigged to include the NPS benefit, he avoids tax-inefficient investments and buys a health insurance plan.

Ranjan should ask his company to reduce his special allowance and put 10% of his basic pay in the NPS under Sec 80CCD(2d). This will cut his tax by Rs 68,000. Tax can be cut further by Rs 15,450 if he puts Rs 50,000 in the NPS under Sec 80CCD(1b).

Income from employer








Ranjan earns interest from fixed deposits. He can save Rs 7,500 in tax by shifting these investments to debt funds. Debt funds are taxed at a lower rate if the holding period exceeds three years.
Ranjan does not have a health insurance plan and depends solely on the group cover from his employer. If he buys a health plan with a premium of Rs 24,000, he can cut his tax by another Rs 7,500.

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