As a first step, Sonawane should opt for the benefit of her employer’s NPS. Under Section 80CCD(2), up to 10% of an employee’s basic salary invested in the pension plan is tax-free. If her company invests Rs 4,670 (10% of her basic salary) in the NPS on her behalf every month, her annual tax will be reduced by approximately Rs 17,500. Another Rs 15,600 will be saved if she invests Rs 50,000 in the plan under Section 80CCD(1b).
Sonawane should also consider getting her company to give her food vouchers and reimburse her newspaper bills. If she receives food vouchers worth Rs 26,400 (Rs 2,200 a month), her annual tax will be reduced by about Rs 8,200. A newspaper allowance of Rs 12,000 (Rs 1,000 a month) will save her Rs 3,750 in tax.
The biggest tax savings The money she saves will be her HRA exemption. Sonawane lives in her parents’ house and hence does not claim HRA exemption. If she pays a monthly rent of Rs 25,000 to her father, she can claim Rs 2.4 lakh exemption from HRA. That will reduce her tax by nearly Rs 50,000. With the savings, she can buy health insurance for her parents. A premium of Rs 25,000 will further reduce her tax by around Rs 7,800.
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