Mumbai-based business analyst Sandesh Gupta pays a high tax because his salary is not very tax-efficient and he has opted for the new tax regime, which offers very few deductions and exemptions. TaxSpanner estimates that Gupta can save about Rs.70,000 in tax if his company offers him a few tax-free perks, as well as the NPS benefit.
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Gupta should start by asking his company for the NPS benefit. Under Section 80CCD(2), up to 10% of the employee’s basic salary put in the pension scheme is tax-free. The Budget has proposed to enhance this limit to 14% for taxpayers like Gupta who opt for the new tax regime. If his company puts Rs.7,700 (14% of basic pay) in the NPS every month, his annual tax will reduce by about Rs.28,800. At 34, Gupta should allocate the maximum 75% of the corpus to equity funds.
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Gupta gets some tax-free allowances, but some more can be included in the CTC. For one, gadget allowance can help save tax. Under Section 17(2), gadgets and household appliances bought in the name of the company and given to the employee for personal use are taxed at only 10% of their value. If Gupta buys items worth Rs.60,000 in a year (Rs.5,000 per month), his tax can reduce by around Rs.19,000. He should also ask for telecommunication allowance for Internet and phone expenses. If he gets telecommunication allowance of Rs.2,000 per month, he will save Rs.7,500 in tax.
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More tax can be saved if Gupta shifts from fixed deposits and debt funds to arbitrage funds. Income from fixed deposits and debt funds is taxed at the slab rate. Arbitrage funds are treated as equity schemes and the gains are tax-free up to Rs.1.25 lakh in a financial year.
