Use NPS, salary perks to reduce tax by Rs 1 lakh; here’s how

Hyderabad-based marketing manager Yash Dwivedi earns well, but also pays a high tax. This is because his salary structure is not very tax-friendly and he does not avail of all the deductions and exemptions available to him. TaxSpanner estimates that Dwivedi can reduce his tax by more than Rs.1 lakh if his salary structure is rejigged to include some tax-free perks, if he opts for the NPS benefit offered by his company, and if he buys health insurance for his family and parents.

Dwivedi should start by opting for the NPS benefit from his company. Under Section 80CCD(2), up to 10% of the basic salary put in the NPS on behalf of the employee is tax-free. If his company puts Rs.9,150 (10% of his basic) in the NPS on his behalf every month, his annual tax will reduce by Rs.34,250. Another Rs.15,600 can be saved if Dwivedi invests Rs.50,000 in the NPS under Section 80CCD(1b) on his own. At 36, Dwivedi should put the maximum 75% in equity funds.

Next, he should ask his company for some tax-free allowances, such as leave travel allowance (LTA), reimbursement of newspaper bills and meal coupons. An LTA of Rs.80,000 will cut his tax by almost Rs.25,000. Newspapers and books worth Rs.1,000 per month and meal coupons worth Rs.2,166 a month will reduce his annual tax by around Rs.12,000.

Buying health insurance can help Dwivedi save more tax. Dwivedi’s family and his parents are covered by the group health insurance from his company. If he buys health insurance for his family and parents, a premium of Rs.60,000 will cut his tax by almost Rs.19,000.Dwivedi invests in mutual funds and stocks, but has no life insurance. He should consider buying a term life insurance plan of at least Rs.2 crore.WRITE TO US FOR HELP
Paying too much tax? Write to us at etwealth@ timesgroup.com with ‘Optimise my tax’ as the subject. Our experts will tell you how to reduce your tax by rejigging your pay and investments.