Tax saving tips: how to reduce tax burden under the new regime

Ratul Mohindra, a Ludhiana-based finance professional, pays high taxes even though his salary is relatively tax-efficient. Mohindra wants to opt for the new tax regime. TaxSpanner estimates that Mohindra can reduce his tax by nearly Rs.25,000 if his company offers him the NPS benefit.

Mohindra chose the new scheme because he cannot claim too many deductions and exemptions. As he lives in his own home, the rent allowance is fully taxable. Under the new regime, there are very few exemptions and deductions. He can nevertheless reduce his tax by requesting the NPS benefit from his company. Under section 80CCD(2), up to 10% of the employee’s basic salary paid into the pension scheme is exempt from tax. This limit is higher at 14% of the base under the new regime opted by Mohindra. If his company contributes Rs 7,943 (14% of his basic salary) into NPS on his behalf every month, his annual tax will be reduced by around Rs 24,500.

If his company agrees to change the salary structure, Mohindra should see some taxable benefits on his salary replaced with tax-free reimbursements. Transport and fuel reimbursement of Rs.96,000 (Rs.8,000 per month), communication allowance of Rs.12,000 (Rs.1,000 per month), LTA of Rs.28,000 and Professional development allowance of Rs.28,000 will be tax-exempt. invoices. A newspaper allowance of Rs.12,000 (Rs.1,000 per month) and food vouchers worth Rs.26,400 (Rs.2,200 per month) can also be added. The medical insurance premium of Rs.25,000 that he pays can also be claimed as deduction.

Under section 80CCD(2), a monthly contribution of Rs.5,673 (10% of one’s basic salary) to NPS will reduce one’s tax by approximately Rs.21,000. An additional Rs.15,600 can be saved if he himself invests 50,000 rupees in the pension scheme.

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