Tired Of Paying High Taxes? Maximise Savings By Claiming HRA And NPS

A person can reduce their tax burden by being aware of two essential claims — house rent allowance, or HRA, and NPS benefit.

A person can reduce their tax burden by being aware of two essential claims — HRA and NPS benefit.

All of us have a broad smile on our faces when we receive the ‘salary credited’ message at the end of each month. However, not many people understand their salary structure and the amount of money that they can save on their tax outgo. Despite having a tax-friendly salary, many people often end up paying a significant amount in taxes and fail to claim all available deductions. A person can reduce their tax burden by being aware of two essential claims — house rent allowance (HRA) and NPS benefit. Additionally, considerable savings can also be achieved by availing food coupons, which are a non-taxable salary component.

If you also want to save all those extra taxes, then you need to know your salary structure better and accordingly plan your taxes.

How to save taxes by claiming HRA?

In case, a person lives in their parents’ house and doesn’t have to pay rent, they will not be eligible to claim HRA exemption. However, if the taxpayer starts paying rent of say Rs 50,000 per month, a significant tax of Rs 1.5 lakh will be shaved off from their annual tax.

While the taxpayers’ parents will be taxed for the rent that they receive, in this case, of the total of Rs 6 lakh, they will be taxed only for Rs 4.2 lakh after a 30% standard deduction.

Coming under the 20% tax bracket as a part of the old tax regime, the taxpayers’ parents will have an additional tax liability of Rs 85,000, thus, they stand to save Rs.65,000 in tax.

How to save taxes with NPS benefits?

The taxpayer should also ask their company to provide them with the NPS benefit as under Section 80CCD(2) of the Income Tax Act, up to 10% of the basic salary invested in NPS is tax-deductible.

For example, if a taxpayer’s company invests Rs 9,528 (10% of the basic pay) in NPS every month, the annual tax will reduce by nearly Rs.36,000.

Apart from NPS, if a taxpayer receives meal coupons worth Rs 24,000 annually, the annual tax will come down further by around Rs 7,500.