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Tax Optimiser: NPS, interest on home loan can help salaried Dama save tax by Rs 17,000

To save tax, start investing in NPS and ask your employer for some tax-free perks. Dama also needs to rejig is tax planning.

ET Bureau|
Updated: Sep 03, 2018, 10.26 AM IST
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You can reduce your tax significantly by getting some tax-free perks and investing in the NPS for retirement.
By Sudhir Kaushik of Taxspanner.com

Sudhakar Dama pays a high tax because his pay structure is not very tax friendly. The only tax-free perk he receives is the children’s education allowance. Taxspanner estimates that Dama can reduce his tax significantly if he gets some tax-free perks and he invests in the NPS for retirement.

However, Dama also plans to buy a house. If he takes a home loan, interest of up to Rs 2 lakh a year can be claimed as a deduction. But his HRA will become fully taxable, which will push up his tax.

Dama should start by asking his company for tax-free allowances such as telephone and newspaper bill reimbursements. These perks are tax free against submission of bills. If he gets Rs 30,000 under these heads, his tax will reduce by about Rs 10,000.

Next, he should ask 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 6,630 in the NPS on his behalf every month, his tax will reduce by about Rs 25,000. Another Rs 15,600 can be saved if he invests Rs 50,000 in the NPS under Section 80CCD(1b) on his own. At 34, Dama should opt for a balanced allocation in the NPS.

Dama also needs to rejig his tax planning. He is putting too much into PPF. Instead, he should start an SIP of Rs 5,000 in an ELSS fund. He should also review his insurance portfolio and dump some of the high-cost low yield insurance policies. This will give him enough surplus to invest in the NPS.

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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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