Are you paying too much tax?

By restructuring your income, expenses and investments you can reduce your tax outgo significantly, says CA Sudhir Kaushik.

Indians are paying too much in tax. This is not because our tax rate is high. Compared to other countries, the tax rate in India is quite reasonable. In fact, some deft investment planning can reduce the tax on an annual income of Rs. 10 lakh to barely Rs. 35,000.

Yet, a lot of Indians end up paying a much higher tax rate. Tax filing data from last year shows that the average taxpayer pays almost 30-35% more in tax compared to a taxpayer who has optimized his liability. Are you among the taxpayers who are not able to save tax? Does the wide gap between your gross income and the net take home pay bother you? The tax experts from Taxspanner.com analyse your income and investments and suggest ways to optimize your tax outgo. Register for 'FILE & PLAN TAX' package under 'Pricing' section here or call/whatsapp at +919311229999 to know more.

Optimizing your tax

Your quest for a lower tax begins with making your salary structure tax friendly. Not everyone has this option but a lot of companies give their employees the freedom to define the benefits they want within a defined framework.

Our first case is 38-year-old marketing professional Sanjeev Gupta. His income is roughly Rs. 11.35 lakh a year and another Rs. 34,000 is income from other sources. Despite availing the full tax benefits under Section 80C, he still pays about Rs. 65,000 as tax. The culprit: a very high basic salary, no exemption on house rent allowance and a fat fully taxable special allowance.

While we do not want to touch the basic salary because it would affect other benefits, Gupta could ask his company to reduce his special allowance from Rs. 96,000 (Rs. 8,000 a month) to Rs. 40,000. Instead, the company can put Rs. 52,000 in the NPS on his behalf. Under Section 80CCD(2), up to 10% of the basic salary contributed to the NPS by the employer is tax deductible. This deduction is over and above the Rs. 1.5 lakh deduction under Section 80C.

The remaining Rs. 4,000 of the special allowance can be given to him in the form of food coupons. This will be a tax free perk for Gupta, who can use these food coupons for buying food items at select outlets affiliated to the coupon issuer. Replacing the special allowance with NPS and food coupons will save Gupta more than Rs. 11,000 in taxes. Register for 'FILE & PLAN TAX' package under 'Pricing' section here or call/whatsapp at +919311229999 to know more.

Rejigging investments, deductions

This year’s budget offers an additional deduction of Rs. 50,000 for investments in the NPS under Section 80CCD(1b). If he can invest the full Rs. 50,000 in NPS, Gupta can prune his tax further by Rs. 10,000. But he should note that this money will get locked for the next 22 years. NPS does not allow partial withdrawals before retirement at 60 except in very dire circumstances.

He also needs to rejig his existing investments. He has invested in fixed deposits and made some short term capital gains from stocks. Given that he is in the 20% bracket, Gupta should avoid tax inefficient investments. Instead he should park his money in short-term debt funds. The gains will be taxed only at the time of withdrawal. He should also avoid short-term investments in stocks. If he hold for a year, the gains are tax free.

Gupta’s employer offers a Rs. 3 lakh medical cover to his family. However, he should also buy a health cover independently that will cover his family even if he changes jobs. A floater cover of Rs. 3 lakh will cost them around Rs. 12,600. An annual medical check up for both husband and wife is also a good idea, which will cost them around Rs. 5,000. This entire expense of Rs. 17,600 is tax deductible under Section 80D. It will cut his tax by around Rs. 3,500. Register for 'FILE & PLAN TAX' package under 'Pricing' section here or call/whatsapp at +919311229999 to know more.

Car on lease

Though his company does not offer such an option, taxpayers like Gupta can also go for a company leased car to reduce their tax. Instead of paying EMIs out of post-tax income, they can ask for a company-leased car as part of their compensation package. The company pays the EMIs while the employee uses the car. If an employer pays an EMI of Rs. 12,000 a month, the taxable perk value is only Rs. 1,800. The employee saves tax on Rs. 10,200. In the 30% bracket, that prunes the tax by almost Rs. 38,000 in a year.

There are many such options available to cut tax without infringing the tax laws.

TaxOptimizer – our tax saving solution, caters to this need by offering a dedicated Chartered Accountant who not only will analyze your income, expenses and investments and suggest ways to reduce your tax outgo in 2016, but will also prepare and file your income tax return for 2015 (or 2016). If you want to optimize your tax, you can write to us at tax.optimizer@taxspanner.com and we will suggest ways to restructure your finances. Alternatively, you can call/whatsapp us on +919311229999 or get in touch with us via Chat on our website between 10:00 am and 6:00 pm. You can also avail this service by opting for 'FILE & PLAN TAX' package (MRP Rs. 2,499 plus taxes) available under 'Pricing' section on www.taxspanner.com.

As published in ET wealth on May 18, 2015.