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    Tax optimiser: IT professional Agarwal has limited scope to cut income tax

    Synopsis

    Pune-based IT professional Girish Agarwal utilises most of the income tax deductions available to him and his salary structure is also quite tax-friendly Due to this, there is not much of a scope to further reduce his income tax liability.

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    A little more tax can be saved if he shifts from fixed deposits to debt mutual funds or tax free options such as the PPF.
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    By Sudhir Kaushik of Taxspanner.com

    Pune-based IT professional Girish Agarwal utilises most of the tax deductions available to him and his salary structure is also quite tax friendly. Despite that almost 20% of his gross income goes into tax. Agarwal has opted for the NPS benefit offered by his company and also invests in the scheme on his own. While that gives him a deduction of Rs 1.95 lakh, the Rs 3 lakh LTA he gets could become taxable if Covid-19 prevents him from travelling. The other problem is that he pays a rent of Rs 3.6 lakh per year but can claim exemption for only Rs 2.15 lakh out of the Rs 7.25 lakh he receives as house rent allowance.

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    Even so, Taxspanner estimates that Agarwal can reduce his tax by around Rs 21,000 if some of the taxable allowances in his pay structure are replaced with tax-free allowances. Agarwal should start by asking his company to replace the conveyance and medical allowances in his salary with some tax-free reimbursements such as newspaper bills and furnishing allowance. These perks are tax free against submission of bills and actual usage. If he gets Rs 1,250 for books and periodicals and Rs 4,000 for furnishings every month, his annual tax will reduce by around Rs 19,600.

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    Girish Agarwal’s tax
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    Though he is covered by group health cover, Agarwal has separately bought health insurance for himself, his wife and senior citizen parents. Given the high cost of hospitalisation due to Covid, this is a wise decision.

    A little more tax can be saved if he shifts from fixed deposits to debt mutual funds or tax free options such as the PPF.

    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.
    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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