Tax optimiser: NPS, health insurance policy can help Sapra reduce tax outgo to zero

Hyderabad-based software professional Tarun Sapra pays a low tax even though his salary is not very tax friendly. But he can optimise his tax outgo by claiming all the deductions available to him. Taxspanner estimates that Sapra can reduce his tax to zero if he opts for the NPS benefit offered by his company and also invests in NPS on his own. Sapra’s taxable income before deductions is Rs.11.39 lakh. If the net taxable income (after all deductions) can be reduced to less than Rs.5 lakh, then one can claim full tax relief under Sec 87A and reduce the tax to zero. Sapra claims HRA exemption for Rs.2.84 lakh and invests the maximum Rs.1.5 lakh under Section 80C.

With the standard deduction of Rs.50,000, these bring down his net taxable income to a little over Rs.7 lakh. Here’s how he can cut it further. As a first step, Sapra should opt for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic put in NPS is tax-free. If his company puts Rs.5,016 (10% of his basic pay) in the NPS every month, his taxable income will reduce by Rs.60,200. It can reduce by another Rs.50,000 if he invests in the scheme on his own under Sec 80CCD(1b). At 27, Sapra should put the maximum 75% in equity funds.


Next, he should ask his company for some basic tax-free perks. If he gets conveyance reimbursements of Rs.24,000 (Rs.2,000 a month), a newspaper allowance of Rs.9,000 (Rs.750 a month) and food coupons worth Rs.22,000, his taxable income will reduce by Rs.55,000. If he buys medical cover with Rs.45,000 for himself and his parents, his net taxable income will fall below Rs.5 lakh.



Paying too much tax? Write to us at etwealth@ with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.

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