Tax optimiser: IT Professional Agarwal can cut tax by Rs 26,000 via health insurance, perks
Mumbai-based IT professional Pankaj Agarwal earns well and avails of many deductions but his salary structure is not tax friendly, resulting in a high tax outgo. Taxspanner estimates that Agarwal can reduce his tax by more than Rs 25,000 if his pay structure is rejigged to include some tax free allowances and he buys health insurance for himself and his family.
Agarwal should start by asking his company to replace the transport and medical allowances which are now taxable in his paycheque with some tax-free reimbursements such as telephone and newspaper bills. These perks are tax free against submission of actual bills. If he gets Rs 24,000 Rs 2,000 a month for telephone and Internet expenses and Rs 18,000 Rs 1,500 a month for newspapers and periodicals, his annual tax will come down by about Rs 13,000.
Next, he should buy medical insurance for himself and his family. Though he is covered by the group medical insurance offered by his company, these plans have a limited scope. Also, they dont work when a person leaves a job. In the current situation when companies are paring the workforce, an independent health plan for the family is necessary. If he pays Rs 25,000 premium for a health plan, his tax will come down by Rs 7,800.
More tax can be saved if he shifts from tax unfriendly fixed deposits to debt mutual funds. Interest from fixed deposits is taxed at normal rates while gains from debt funds are taxed at 20% if the holding period exceeds three years. The investor is also eligible for indexation benefit.
