Ahmedabad-based finance professional can save Rs 1.58 lakh tax by moving to new tax regime

Ahmedabad-based finance professional, Sahil Parashar, pays a high tax because his salary structure is not very tax-friendly and he is not able to claim several exemptions and deductions in full. TaxSpanner estimates that Parashar can reduce his tax outgo by more than Rs.1.58 lakh if he moves to the new tax regime and opts for the NPS benefit offered by his company.

Some of the allowances in Parashar’s salary are tax-free, but he is not able to claim exemption for all of them. Tax rules allow him a maximum HRA exemption of Rs.1.5 lakh, which makes the remaining Rs.3.23 lakh taxable. He is not able to claim exemption for LTA as well. The conveyance and medical allowances in his salary are already taxable.Also read | Pardeshi should prepay home loan, review and rebalance investments to meet kids’ graduation, own retirement goals

The Budget has brought hope to taxpayers like Parashar. He should move to the new tax regime, where his tax will be lower by almost Rs.1.15 lakh. He will not get any exemption for HRA or deduction for tax-saving investments under Section 80C and medical insurance premium under Section 80D, but the higher standard deduction and lower tax rates will more than make up for that.

Bigger tax savings are possible if Parashar’s company offers him the NPS benefit. Under Section 80CCD(2), up to 14% of the employee’s basic salary put in the pension scheme is taxfree. If his company puts Rs.11,054 (14% of his basic salary) in the NPS on his behalf every month, his tax will reduce by nearly Rs.41,500. It will reduce his take-home pay, but the tax savings will more than compensate for that.

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