Maximizing Tax Savings Through Strategic Financial Planning

Key Takeaways:

1. Consider taking a home loan to potentially reduce tax liability by almost Rs. 31,000.

2. Seek the NPS benefit under Section 80CCD(2) to avail tax-free contributions from the employer.

3. Explore the possibility of obtaining tax-free allowances such as leave travel allowance or reimbursement of books and newspaper bills to save on taxes.

4. Purchase health insurance for parents to avail tax benefits.

Based on the information provided, how Anubhav Garg, a PSU bank manager, can save more than Rs. 60,000 in tax by optimizing his income and investments:

Home Loan

Anubhav Garg can consider taking a home loan, which can lead to significant tax savings. If he takes a loan of Rs.25 lakh for 20 years at 7%, it will require an EMI of about Rs.20,000 and an annual interest of around Rs.1.5 lakh. This can potentially reduce his tax liability by almost Rs.31,000.

National Pension System (NPS) Benefit

Anubhav Garg’s bank offers the NPS as a retiral benefit to its employees, and he also invests Rs.50,000 in the scheme on his own. He should seek the NPS benefit under Section 80CCD(2), wherein up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free. If his company puts Rs.5,389 (10% of his basic) in the NPS every month, his tax can reduce by almost Rs.13,500.

Tax-Free Allowances

Anubhav Garg should explore the possibility of getting some tax-free allowances. For instance, the taxable medical allowance can be replaced by leave travel allowance or reimbursement of books and newspaper bills, potentially saving him almost Rs.9,500 in tax.

Health Insurance for Parents

He should also consider buying health insurance for his parents. An annual premium of Rs.25,000 will reduce his tax by Rs.5,200.

By implementing these strategies, Anubhav Garg can potentially save more than Rs.60,000 in tax. It’s important to note that tax laws and regulations may vary, so it’s advisable for Anubhav Garg to consult with a tax professional or financial advisor to ensure that these strategies align with his specific financial situation and the current tax laws.

FAQ

Q1: How much tax can Anubhav Garg potentially save by taking a home loan?

A1: Anubhav Garg can potentially reduce his tax liability by almost Rs. 31,000 by taking a home loan of Rs.25 lakh for 20 years at 7%.

Q2: What is the NPS benefit under Section 80CCD(2)?

A2: Under Section 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free, which can lead to significant tax savings.

Q3: How can tax-free allowances contribute to tax savings?

A3: By replacing taxable allowances such as medical allowance with tax-free allowances like leave travel allowance or reimbursement of books and newspaper bills, Anubhav Garg can potentially save almost Rs. 9,500 in tax.

Q4: What are the tax benefits of purchasing health insurance for parents?

A4: Purchasing health insurance for parents can lead to tax savings, with an annual premium of Rs.25,000 potentially reducing tax liability by Rs. 5,200.