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How to restructure your income, investments and expenses to optimise tax
June, 29th 2015

Srihit Chawda is a 32-year-old IT professional. His income is Rs 13.17 lakh and almost 8% of this goes in tax. With some smart planning, the tax outgo can be reduced to less than 5% of his income.

How to restructure your income, investments and expenses to optimise tax

It could have been cut further if his company agreed to invest in the NPS under Sec 80CCD2. Chawda should begin by restructuring his compensation. Instead of a high special allowance, he should ask his employer to offer reimbursements for telephone and newspaper expenses. These are tax free on submission of bills. If Rs 30,000 a year is received for this, it cuts annual tax by over Rs 6,000. He should also ask for a leave travel allowance. This is tax free once in a block of two years. If his employer agrees, an LTA of Rs 72,000 will cut Chawda's tax by almost Rs 15,000.

How to restructure your income, investments and expenses to optimise tax
Next, he could invest Rs 50,000 in the NPS under the newly introduced Sec 80CCD1b. This will reduce his tax by over Rs 10,000. However, Chawda should note a few things. The investment in NPS is locked till he turns 60. Early withdrawals are allowed under certain circumstances. Also, when he turns 60, he will have to put at least 40% of the corpus in an annuity to earn pension. This pension will be fully taxable.

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