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    Tax Optimiser: Contributing to NPS can cut Ghosh's tax outgo by Rs 50,000

    Synopsis

    Taxspanner estimates that Ghosh can reduce tax by over Rs 50,000 if company offers him the NPS benefit and he invests more in the scheme on his own.

    Sudhir Kaushik of Taxspanner.com tells readers how they can optimise their tax by rejigging their income and investments.
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    Satyajit Ghosh pays almost 11% of his income in tax because he is not aware of tax saving options. Taxspanner estimates that Ghosh can reduce his tax by over Rs 50,000 if his company offers him the NPS benefit and he invests more in the scheme on his own.

    He can also enhance his family’s medical cover and save on tax. Ghosh should start by asking his company for the NPS benefit. Under Section 80CCD(2d), up to 10% of the basic salary put in NPS is deductible. If his company puts Rs 6,214 in the NPS on his behalf every month, his annual tax will reduce by more than Rs 23,000. But this will also reduce his take-home by about Rs 4,200.

    More tax can be saved if Ghosh invests in the NPS on his own under Sec 80CCD(1b). Up to Rs 50,000 invested can be claimed as a deduction. If he puts Rs 50,000 in NPS, Ghosh’s tax will be cut by Rs 15,600. He is 40 but averse to taking risk, so Ghosh should divide the corpus equally between equity funds, corporate debt funds and gilt funds.

    Ghosh also needs to rejig his tax planning. Right now, he is paying a huge premium for low-yield insurance plans. He should close down the plans he bought in recent years and instead buy a term insurance cover of Rs 1 crore. At his age, a cover of Rs 1 crore will cost him about Rs 15,000 a year. He should also enhance his family’s medical insurance. If the premium is Rs 20,000 a year, he will save Rs 1,200 in tax. Ghosh should also shift from fixed deposits to debt funds for greater tax efficiency.

    Income from employer
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    Tax-saving investments
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    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 to know how to save on taxes for the financial year 2020-21.)

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