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Tax Optimiser: Why salaried Maduri needs to rejig pay structure to cut tax

By Sudhir Kaushik of Taxspanner.com

Phaneendra Maduri is paying a high tax because his pay structure is quite skewed. His house rent allowance is nearly 90% of his basic pay, which means he is not able to claim the full exemption. He is also not utilising the tax saving options available to him.

Taxspanner estimates that Maduri can reduce his tax by nearly Rs 74,000 if his HRA is reduced, he gets tax-free perks, his company offers him NPS benefit and he invests more in the scheme on his own.

Income from employer
Maduri''s-income

He should ask his company to reimburse magazine and newspaper bills, telecommunication expenses and also provide food coupons. These perks are tax free against submission of bills and actual usage. If he gets Rs 75,000 under these heads, his tax will reduce by about Rs 24,000.
tax-saving-investments

Next, he should ask for the NPS benefit from his company. Under Sec 80CCD(2d), up to 10% of the basic salary put in NPS is deductible. If his company puts Rs 7,995 in the NPS on his behalf every month, his tax will reduce by about Rs 30,000.

Another Rs 15,600 can be saved if he invests Rs 50,000 in the NPS under Sec 80CCD(1b) on his own. At 43, Maduri should opt for a balanced allocation and divide his NPS corpus equally between equity fund, corporate debt fund and the gilt fund.

More tax can be saved if he shifts out of fixed deposits and invests in debt funds. Short-term capital gains tax can be avoided by holding for longer periods.

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.
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