Tax-saving tips: Rent to father makes HRA tax-free

Thane-based marketing professional Dinesh Sonawane has a tax-friendly salary. However, he pays a high tax because he doesn’t avail of all the deductions and exemptions available to him. TaxSpanner estimates that Sonawane can save more than Rs.1.1 lakh in tax if he opts for the NPS benefit offered by his company and invests more in the pension scheme on his own. He should also claim HRA exemption by paying rent to his father and buy a health insurance plan for his parents.

As a first step, Sonawane should opt for the NPS benefit from his employer. Under Section 80CCD(2), up to 10% of the employee’s basic salary put in the pension scheme is tax-free. If his company puts Rs.4,670 (10% of his basic salary) in the NPS on his behalf every month, his annual tax will reduce by about Rs.17,500. Another Rs.15,600 will be saved if he invests Rs.50,000 in the scheme under Section 80CCD(1b).

Sonawane should also explore if his company will give food coupons and reimburse his newspaper bills. If he gets food coupons worth Rs.26,400 (Rs.2,200 per month), his annual tax will reduce by around Rs.8,200. A newspaper allowance of Rs.12,000 (Rs.1,000 per month) will save Rs.3,750 in tax.

The biggest tax saving will come from HRA exemption. Sonawane lives in his parents’ house and, therefore, doesn’t claim exemption for HRA. If he pays a monthly rent of Rs.25,000 to his father, he can claim exemption for Rs.2.4 lakh HRA. That will cut his tax by nearly Rs.50,000. With the savings he can buy a health cover for his parents. A premium of Rs.25,000 will cut his tax further by around Rs.7,800.

WRITE TO US FOR HELP
Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.