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Tax optimiser: Avuluri can save Rs 43,000 tax via NPS, health insurance

Not only should you ask your employer for the NPS benefit, but you should also invest in the scheme on your own. You can reduce your tax outgo significantly.

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Last Updated: Jan 06, 2020, 06.30 AM IST
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You can optimise your tax by rejigging your income and investments.
Sudhir Kaushik of Taxspanner.com

Bhopal-based PSU engineer Chiranjeevi Avuluri has a very tax efficient salary structure, with a tax outgo of only 7.7% of the total income. But there is scope to prune this further.

Taxspanner estimates that Avuluri can reduce his tax by over Rs 43,000 if his salary structure is rejigged to include the NPS benefit, he invests more in the scheme on his own and enhances medical insurance for himself and his family.

Income from employer

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Income from other sources

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Avuluri should start by opting for the NPS benefit offered by his company. Under Sec 80CCD(2), up to 10% of the basic salary put in the scheme is tax free. If his company puts Rs 9,347 (or 10% of his basic pay) in the NPS every month, his annual tax will reduce by Rs 29,000. Another Rs 10,400 can be saved if he invests Rs 50,000 in the NPS on his own under Sec 80CCD(1b).

At 33, Avuluri should opt for an aggressive asset mix, with the maximum allocation to equity funds. If he is not sure of how to allocate the corpus, he can opt for the Aggressive Lifecycle fund of the NPS. Under this, the age of the individual determines the asset mix.

Tax-saving investments

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Other deductions

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Avuluri gets leave travel allowance (LTA) of Rs 97,704, but is able to claim exemption for only Rs 68,000. The LTA and the special allowance can be reduced to make way for the NPS benefit.

Chiranjeevi Avuluri’s tax

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Being a PSU employee, Avuluri enjoys medical insurance for himself and his family. He can save tax if he adds critical illness cover. A cover of Rs 10 lakh will cost him about Rs 15,000 a year and reduce his tax by roughly Rs 3,000.

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.
Click here for all the information and analysis you need for tax-saving this financial year
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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