Hyderabad-based IT professional Nitin Pai earns well but also pays a high tax. More than a fourth of his total income goes into tax and there is very little scope for rejigging the salary structure. Even so, Taxspanner estimates that Pai can reduce his tax by almost Rs 67,000 if his company replaces some taxable perks with tax free allowances, Pai contributes more to the NPS and enhances the medical insurance for himself and his family.

The high tax is also because Pai’s taxable income is above Rs 50 lakh, which makes it liable for 10% surcharge on the tax.

Income from employer


Income from other sources


Pai has opted for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic salary put in the scheme is tax free. However, he contributes only Rs 12,733 (or 5% of his basic pay) instead of the maximum Rs 25,466. If he starts contributing more, his tax can reduce by nearly Rs 52,000.

Tax-saving investments


Other deductions


However, other changes will not yield significant tax cuts. If his company replaces the medical allowance in his pay with a tax-free newspaper allowance, it can save him around Rs 5,150 in tax. Pai has medical insurance for himself. He should buy cover for the entire family. A floater cover of Rs 5 lakh will cost him about Rs 25,000 and cut his tax by roughly Rs 6,500.

Nitin Pai’s tax


Pai should also shift from fixed deposits to debt funds to save tax. While interest from fixed deposits is fully taxable as income, gains from debt funds are taxed at a lower rate if the holding period exceeds three years.

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