Switching to new tax system could save Hyderabad IT specialist Rs 62,000 in tax

Hyderabad-based software professional Naveen Bhanot earns a good salary but pays high taxes because he can’t claim all the deductions and exemptions available to him. TaxSpanner estimates that Bhanot could save around Rs 62,000 in tax if he opts for the new tax regime and increases his NPS contribution through his employer.

Bhanot wants to switch to the new regime this year. Under it, he will not get a deduction for mortgage interest as it is available only for rented properties. He will also not get a deduction for tax savings under Section 80C or medical insurance under Section 80D. However, he will get a higher basic exemption of Rs 3 lakh (Rs 2.5 lakh in the old regime) and a standard deduction of Rs 75,000 (Rs 50,000 in the old regime). He will also get a higher deduction for NPS contributions through his employer. Under Section 80CCD(2), up to 14% of an employee’s basic salary contributed to a pension scheme is tax-free. If he asks his company to increase his monthly contribution to Rs 13,305 (14% of his basic salary), his annual tax will come down by about Rs 28,500.

Many of Bhanot’s tax-free allowances (fuel and car maintenance, driver’s salary, LTA) are taxable because he cannot claim exemption. They should be replaced with other tax-free allowances. If he gets food stamps worth Rs 26,400 (Rs 2,200 per month) and a newspaper allowance of Rs 12,000 (Rs 1,000 per month), he will save Rs 12,000 in tax. Under Section 17(2), gadgets and devices purchased on behalf of the company and given to an employee for personal use are taxed at 10% of their value. A gadget allowance of Rs 60,000 (Rs 5,000 per month) will reduce Bhanot’s tax by almost Rs 19,000.

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