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Tax Optimizer: NPS, debt MFs, buying medical cover can help George cut tax by Rs 50,000

To save tax, use debt funds as these are taxed only at the time of withdrawal. To plan tax better, instead of maintaining a large PPF corpus, start an SIP.

ET Bureau|
Aug 27, 2018, 06.30 AM IST
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If you switch to debt funds, your income will be taxed only at the time of withdrawal, helping you save a substantial amount on tax.
By Sudhir Kaushik of Taxspanner.com

Priya Eapen George does not have a very high salary but her income from fixed deposits and rent has pushed up her overall tax outgo. Taxspanner estimates that George can reduce her tax by over Rs 50,000 if she switches from fixed deposits to debt funds, invests in the NPS for retirement, and buys a medical insurance plan.

George earns an interest of Rs 1.8 lakh a year from her fixed deposits. If she switches to debt funds, the income will be taxed only at the time of withdrawal. If she holds the debt funds for over three years, the rate will be 20% after indexation. This rejig can help her save almost Rs 36,000 in tax.

Next, she should ask her company to replace the conveyance allowance with tax-free perks such as newspaper and telephone bill reimbursements. If she gets Rs 2,000 a month (Rs 24,000 annually) under these heads, her tax will reduce by almost Rs 1,250.

George should also ask her company to extend her the NPS benefit under Section 80CCD(2d). Under this, up to 10% of the basic salary put in NPS is deductible. If her company puts Rs 30,000 (10% of her basic) in the scheme, her tax will reduce by about Rs 1,600. Another Rs 2,600 can be saved if she invests Rs 50,000 in the NPS on her own under Section 80CCD(1b).

Apart from saving tax, George also needs to rejig her tax planning. Instead of putting a large amount in PPF every year, she should start a Rs 5,000 SIP in an ELSS fund. This will give her the necessary equity exposure which is missing in her portfolio.

Income from employer




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