Pune-based Kavitha Kumar pays a low tax because her salary structure is tax friendly. Even so, there is scope to bring this down further. Taxspanner estimates that Kumar can reduce her tax to zero if she opts for the NPS benefit offered by her company, invests in the scheme on her own as well, and buys medical insurance for herself and her parents. Her net taxable income after all deductions is Rs.7.2 lakh. If this is reduced to less than Rs.5 lakh, she will be eligible for full tax rebate under Section 87A. Kumar should start by opting for the NPS benefit offered by her company. Under Sec 80CCD(2), up to 10% of the basic salary put in the NPS is tax deductible.

If her company puts Rs.3,037 (10% of basic pay) in the NPS every month, Kumar’s taxable income will reduce by Rs.36,440. It can be cut further by up to Rs.50,000 if she invests in the NPS under Section 80CCD(1b). Next, Kumar should ask her company for some tax-free perks, such as reimbursements for conveyance and LTA. If she gets conveyance reimbursement of Rs.42,000 (Rs.3,500 per month) and LTA of Rs.50,000, her taxable income will be lower by Rs.92,000. Lastly, she should buy health insurance for herself and her parents. If she pays an annual premium of Rs.36,000, her taxable income will fall below Rs.5 lakh, making her eligible for full tax rebate. A note of caution. Kumar has invested in fixed deposits. The interest is fully taxable, which could push up her income above the Rs.5 lakh threshold. To avoid this, she can opt for debt funds where gains are taxed on withdrawals.

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.

Source By: economictimes

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