Taxspanner.com advises readers on how to restructure their income, investments and expenses to optimise their tax.

Ravi Verma has a very tax friendly income structure. Barely 3.5% of his income goes in tax.

However, Taxspanner estimates that he can reduce this further to less than 2% of his gross income if his company offers him more tax-free perks and he invests more for retirement. Verma should start by asking his employer to reimburse his teelphone and newspaper bills. If he gets Rs 42,000 a year under these heads, his tax will come down by Rs 8,500.

Next, he should ask for NPS benefit. Up to 10% of the basic salary put in the NPS by employer is deductible under Sec 80CCD(2d). If Rs 46,000 is put in NPS on his behalf, Verma’s tax will be cut by about Rs 4,700. But it will also reduce his take-home pay by Rs 3,500. If Verma invests Rs 50,000 more in the NPS under Sec 80CCD(1b), his tax can be cut by Rs 5,150.

However, investments in the NPS will be locked till retirement. Even then, at least 40% of the corpus will have to be compulsorily put in an annuity to earn a monthly pension. Verma earns a small amount from fixed deposits as well. He can avoid paying tax on this every year by switching to debt funds that get taxed only at the time of withdrawal.

Please note that the calculations on this page do not take into account the tax changes proposed in this year’s Budget. We will incorporate them only after the Budget is passed.

Actions to take
* Reduce fully taxable component ( Special allowance) of your pay

* These perks ( Telephone and communications) are completely tax free on submission of actual bills.

* Up to 10% of basic invested in NPS is tax deductible.

* Avoid FDs and invest in debt funds to defer tax.