How Salary Perks and NPS Can Save Rs 1 Lakh in Income Tax

Key Takeaways:

1. HRA Exemption: Due to a high basic salary, Mano Gowda’s HRA exemption is relatively low, resulting in a reduced exemption of Rs. 66,000.

2. NPS Benefit: By availing the NPS benefit offered by his company, up to 10% of the basic salary put in the NPS on behalf of the employee is deductible under Section 80CCD(2) (of Income Tax Act, 1961), potentially reducing tax liability by almost Rs. 36,000.

3. Tax-Free Perks: Leveraging tax-free perks such as reimbursement of newspaper expenses, meal coupons, leave travel assistance, and gadget allowance can significantly reduce tax liability.

4. Gadgets Bought for Personal Use: Gadgets bought for personal use are taxed at only 10% of the value, presenting an opportunity for tax reduction.

5. Expert Assistance: Readers are encouraged to seek expert advice on tax optimization by writing to etwealth@timesgroup.com with ‘Optimise my tax’ as the subject.

The article provides insights into how an individual, in this case, Mano Gowda, can optimize his tax savings by restructuring his salary components and making strategic investments. Here’s a breakdown of the key points mentioned in the article:

Salary Restructuring for Tax Optimization

1. HRA Exemption: Mano Gowda’s HRA exemption is relatively low due to his high basic salary. The HRA exemption is calculated as the lowest of the following:

Actual HRA received

50% of basic salary

Rent paid, less 10% of basic salary

Since his basic salary is high, the HRA exemption is reduced to Rs. 66,000.

2. NPS Benefit: By opting for the NPS benefit offered by his company, up to 10% of the basic salary put in the NPS on behalf of the employee is deductible under Section 80CCD(2) (of Income Tax Act, 1961). If his company puts Rs. 9,500 (10% of his basic) in the NPS on his behalf every month, his tax will reduce by almost Rs. 36,000.

3. Tax-Free Perks: Mano Gowda can also benefit from tax-free perks such as reimbursement of newspaper expenses, meal coupons, leave travel assistance, and gadget allowance. These perks can significantly reduce his tax liability.

4. Gadgets Bought for Personal Use: Under Section 17(2) (of Income Tax Act, 1961), gadgets bought for personal use are taxed at only 10% of the value. Therefore, a gadget allowance of Rs. 60,000 will cut tax by about Rs. 18,000.

5. Leave Travel Assistance (LTA): LTA of Rs. 1 lakh will reduce his tax by Rs. 31,200.

Conclusion

The article suggests that by optimizing his salary structure to include tax-free perks and by availing the NPS benefit offered by his company, Mano Gowda can potentially save nearly Rs. 1 lakh in tax.

Expert Assistance

The article also encourages readers to seek expert advice on tax optimization by writing to etwealth@timesgroup.com with ‘Optimise my tax’ as the subject.