Tax Optimizer: IT professional Desai can cut tax outgo by switching from FDs to debt MFs

Hyderabad-based software professional Manoj Desai has a high salary but also pays a high tax. Over 28% of his total income goes into tax. Taxspanner estimates that Desai can reduce his tax by almost Rs 4.6 lakh if his company changes the pay structure, Desai invests more for retirement and also takes a home loan to buy a property.

Desai is paid a very high city compensatory allowance. This should be reduced and 10% of his basic pay should be put in NPS under Sec 80CCD(2d). This will cut his tax by Rs 1.4 lakh. If he invests Rs 50,000 more in the NPS under Sec 80CCD(1b), his tax can be cut by another Rs 17,000. Next, he should ask for a higher conveyance allowance. An increase from Rs 2,000 to Rs 5,000 a month will cut his tax by Rs 12,250.

Income from Employer








Desai earns Rs 7.1 lakh interest on his fixed deposits. This income is fully taxable at 34%, the marginal rate applicable to him. If he shifts the money to debt funds, the income will escape the high tax rate. After three years, the gains are taxed at 20%. This will cut his tax by Rs 2.4 lakh.

The tax outgo can be further pruned by taking a home loan and giving the property out on rent. Though the rent is taxable, Desai can claim deduction of Rs 2 lakh and cut his tax by Rs 54,000.

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