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Tax optimiser: IT professional Halder needs to use Sec 80C limit fully, opt for NPS

By Sudhir Kaushik of Taxspanner.com

Pune-based IT professional Indranil Halder has a low tax outgo even though his pay structure is not tax friendly and he doesn’t utilise all the deductions available to him. Taxspanner estimates that Halder can reduce his tax by nearly Rs 46,000 if he invests more under Section 80C, opts for the NPS benefit offered by his company and invests in the pension scheme on his own.

Income from employer

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Income from other sources

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The conveyance allowance in Halder’s pay package is taxable. It should be replaced with food coupons (Rs 1,500 per month) and newspaper allowance (Rs 1,000 a month). This will save him almost Rs 6,250 in tax. Next, he should avail the LTA once in a block of two years to claim tax exemption. This will reduce his tax by Rs 6,750.

Tax-saving investments

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Other deductions

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Halder does not fully utilise his Sec 80C investment limit. He should increase the SIP in ELSS funds from Rs 5,500 to Rs 7,500 a month and buy a term plan. A term insurance cover of Rs 1 crore will cost him about Rs 8,000-10,000 a year. These steps will cut his tax by Rs 7,300.

Indranil Halder’s tax

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A big tax break will come his way if he opts for the NPS benefit offered by his company. Under Section 80CCD(2), up to 10% of the basic salary put in NPS is tax deductible. If his company puts Rs 3,340 (10% of his basic salary) in NPS every month, his tax will reduce by about Rs 8,400. Another Rs 10,400 can be saved if he invests Rs 50,000 in the scheme on his own under Section 80CCD(1b). At 25, Halder should allocate the maximum 75% of the corpus to equity funds.

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.
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