Do this to reduce your tax outgo by Rs 86,000!

Reduce your tax outgo

Vijayawada-based engineer Mahesh Babu Pagolu pays a moderate tax because his salary structure is quite tax-friendly. However, he can bring down the tax outgo significantly by claiming all the deductions available to him. (By Sudhir Kaushik of TaxSpanner.com)

Help at hand

TaxSpanner estimates that Pagolu can reduce his tax by nearly Rs 86,000 if he pays rent to his mother and claims HRA exemption, if his company offers him the NPS benefit, and if he invests in the pension scheme on his own.

Do this too

He should also ask for some tax-free allowances like LTA and buy medical insurance for his family.

Rent component

Pagolu lives with his mother in her house. If he pays her a monthly rent of Rs 25,000, he can claim exemption for Rs 2.54 lakh that he gets as HRA. This will help him save Rs 53,000 in tax.

NPS advantage

Under Section 80CCD(2), up to 10% of basic salary put in the NPS is tax-deductible. If his company puts Rs 4,232 (10% of his basic pay) in the NPS every month, Pagolu can save about Rs 10,600 in tax.

Another benefit of NPS

Another Rs 10,400 can be saved if he invests Rs 50,000 in the scheme on his own under Section 80CCD(1b). At 35, Pagolu should put the maximum 75% in equity funds of the NPS.

Save tax

Pagolu already gets some tax-free perks such as telephone allowance and meal coupons. If he also gets an LTA of Rs 50,000, his tax will reduce by Rs 10,400. More tax can be saved if he buys health insurance for his family and mother.

Income from employer

Tax saving investments

How much tax has been saved