Tax optimiser: NPS, perks can help Desai save Rs 1 lakh tax

Bengaluru-based software professional Pranav Desai earns well, but more than a fifth of his income goes in tax. His pay structure is very tax unfriendly with barely any tax-free perks. The only tax-free allowance is the Rs.2,000 monthly reimbursement of telephone expenses. The company also offers house rent allowance but Desai opted out because he lives in his own house and claims tax deduction for the interest paid on the home loan. Taxspanner estimates that Desai can save more than Rs.1 lakh in tax if his company offered him the NPS benefit and some tax-free emoluments. Desai should start by asking his company for the NPS benefit. Under Sec 80CCD(2), up to 10% of the basic salary put in NPS is tax free. If his company puts Rs.15,816 (10% of his basic pay) in the NPS every month, Desai’s annual tax will reduce by a whopping Rs.60,000. He already invests in the NPS and knows the asset allocation to opt for.

Next, Desai should ask his company to offer some tax free perks. If he gets an LTA of Rs.72,000, his tax will come down by roughly Rs.22,500. He should also ask for a gadget allowance under Section 17(2). Gadgets bought in the name of the company and given to the employee for personal use are taxed at only 10% of the value. If Desai gets Rs.48,000 a year (Rs.4,000 per month), his annual tax will reduce by around Rs.15,000. Some other basic tax-free components such as a newspaper allowance and food coupons can reduce the tax further. If he gets Rs.1,000 per month for newspaper and periodicals, his annual tax will reduce by around Rs.3,750. Meal coupons worth Rs.22,000 will bring down his tax by another Rs.7,000.




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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