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Tax Optimiser: How salaried Raj can save tax by paying rent to his father

Vivek Raj has a fairly tax-friendly salary structure but still pays a high tax because he is unable to avail some of the exemptions.

Apr 16, 2018, 06.30 AM IST
By Sudhir Kaushik of

Vivek Raj has a fairly tax-friendly salary structure but still pays a high tax because he is unable to avail some of the exemptions. Taxspanner estimates that his tax can be cut by over Rs 1.1 lakh if he pays rent to his father to claim HRA exemption and also opts for the NPS benefit his company offers.

Raj lives in his father’s house in Hyderabad. If he pays a rent of Rs 30,000 to his father, he can claim exemption for the entire HRA of Rs 2.8 lakh. This will reduce his tax by almost Rs 88,000. Of course, his father will be taxed for this income after a 30% standard deduction.

Income from employer

Given that his senior citizen father’s pension is only Rs 2 lakh a year, the additional Rs 3.6 lakh rental income will push up his taxable income to Rs 4.5 lakh. He can invest Rs 1.5 lakh under Sec 80C to reduce the tax liability to zero.

Though his company offers him the NPS benefit under Sec 80CCD(2d), Raj has not opted for it yet. If Rs 70,460 (10% of his basic) is put in the NPS, his tax will come down by almost Rs 22,000.

Raj also needs to tweak his insurance and tax planning. He has too many high-cost insurance policies and too little life cover. He should terminate some of these policies and opt for a term plan of Rs 1 crore. He also needs some equity exposure and should start an SIP of Rs 5,000 a month in a good ELSS fund.

More tax can be saved if he goes on vacation with his family and claims exemption for the Rs 60,000 he gets as LTA.

Write to us for help
Paying too much tax? Write to us at etwealth@ with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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