National Pension System

Tax Optimiser: How IT professional Gupta can save Rs 78,000 in tax via home loan, NPS

Pune-based IT professional Rahul Gupta pays a very high tax, with almost 12% of his income taken away by the taxman. Taxspanner estimates that Gupta can reduce his tax by almost Rs 78,000 if he takes a home loan, avails of the NPS benefit given by his company and invests more in the pension scheme on his own.

Gupta should start by opting to contribute to the NPS under Section 80CCD(2d). Up to 10% of the basic salary put in NPS is deductible. If his company puts Rs 5,309 in the NPS on his behalf every month, his annual tax will reduce by about Rs 20,000. But this will also reduce his take-home pay by about Rs 3,650.

The NPS can help save more tax if Gupta invests in the scheme under Sec 80CCD(1b). If he puts Rs 50,000 in the scheme, his tax will be cut by Rs 15,600. Given his age (Gupta is 31), he should put the maximum 75% in equity funds.

Gupta gets a small amount (Rs 1,200 a month) as conveyance allowance. Since this is now taxable, he should get this replaced by a tax free perk such as a newspaper reimbursement. This will cut his tax by Rs 4,500.

Though he pays rent, Gupta is able to claim exemption for only Rs 92,368, which is only a third of his total HRA of Rs 2.48 lakh. If he takes a home loan, up to Rs 2 lakh interest on the loan can be claimed as a deduction every year. The EMI of a loan of Rs 25 lakh at 8.5% for 15 years will be around Rs 24,600 and reduce his tax by Rs 62,400. But the HRA will then be fully taxable, reducing the net tax gain to Rs 33,500.

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