Rent to dad makes HRA exempt

Sudhir Kaushik of Taxspanner.com tells readers how they can optimise their tax by rejigging their income and investments.

Chandra Sekhar pays a very low tax but there is scope to save a large portion of it. Taxspanner estimates that it can be reduced by over ₹80,000 if he pays rent to his father and claims HRA exemption, his company offers him the NPS benefit and he invests more in the scheme himself.

Sekhar lives with his wife in his father’s house in Coimbatore. If he pays rent to his father, he can claim HRA exemption. If the entire ₹2.7 lakh is exempt from tax, his tax will come down by almost ₹56,000. However, Sekhar’s father will be taxed for this income after a 30% standard deduction. Since his father does not have income of his own, this will not be a problem.

Sekhar’s company does not offer retiral benefits. If it does away with special allowance and instead puts 10% of Sekhar’s basic salary in the NPS under Sec 80CCD(2d), his tax will come down by almost ₹14,000. Another ₹5,150 can be saved if Sekhar puts ₹50,000 in the NPS on his own under Sec 80CCD(1b).

At 32, Sekhar should opt for the Aggressive Lifecycle Fund (LC-75) which puts 75% of the corpus in equity funds.

Sekhar’s parents and wife are not covered by any medical insurance plan. If he buys medical insurance for them at a cost of ₹20,000, his tax will reduce by ₹2,000. Tax can also be saved by shifting from FDs to debt funds.

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